Bitcoin Cash – Uncertainty Weighs Ahead of the Hard Fork

Bitcoin Cash

Demand for a crypto ahead of a hard fork has traditionally come on the expectation that there would be no disruption to the original coin, with hash rates having supported the likes of Bitcoin in previous hard forks that had ironically resulted in the creation of Bitcoin Cashback in 2017.

This time around it’s a far too unfamiliar story for the cryptomarket, with the uncertainty leading to Bitcoin Cash sliding 21.99% from last Wednesday’s November high $646.8 to Monday’s $504.7 low, the reversal wiping out the more customary pre-hard fork rally that was seen on Sunday, 4th November, where Bitcoin Cash rallied 18.76% on hopes of another seamless hard fork and upgrade.

Going into the Bitcoin Cash hard fork this Thursday, 15th November has investors and prospective investors eyeing hash rates, with the newswires busy updating the respective hash rates of Bitcoin ABC and Bitcoin SV, the divided camps that are ultimately being influenced by Bitcoin Cash mining giants Bitmain and CoinGeek.

At stake is the future of Bitcoin Cash and the uncertainty has grown in recent days, with news of Bitfinex, one of the largest cryptocurrency exchanges, stating that while they will support the Bitcoin Cash hard fork, they will not take sides until the completion of the hard fork, leaving the Bitcoin Cash community to deliver consensus on the fork and ultimately decide the fate of Bitcoin Cash as we know it today.

Investors’ hope of being able to receive Bitcoin SV coins at a ratio of 1:1 to Bitcoin Cash coins held is in question just 2-days ahead of the hard fork and as a result, few are taking the plunge, which continues to pressure Bitcoin Cash to the downside.

To make matters worse, conflicting reports hitting the wires are indicating 51% hash rates in favor of both sides of the camp, depending upon the report and the timing of the data.

Adding to the uncertainty, the cryptomarket is also looking at futures prices of both Bitcoin ABC and Bitcoin SV, a number of exchanges have set up respective futures tokens to provide some guidance on market support.

Hash rates are in favor of Bitcoin SV, while futures token values are favoring Bitcoin ABC.

The market’s betting on Bitcoin ABC, based on futures prices, but with hash rates going the other way, Thursday could be a dark day for Bitcoin Cash and the broader market.

Crypto Mining Farms

Crypto mining farm

While a number of altcoins look to pin back the rise to power of mining cartels by developing blockchains fuelled by cryptocurrencies that are mined using hybrid consensus algorithms, there remains a large number of blockchains that are run on proof-of-work consensus algorithms that continue to support the existence of mining pools and more importantly and of greater significance, mining farms.

What is a Mining Farm?

In the early years of the cryptomarket, only a handful of cryptocurrencies existed and mining for the likes of Bitcoin was particularly easy, with miners able to use basic desktop computers.

As the price of Bitcoin rallied, mining interest for Bitcoin and other cryptocurrencies has seen a significant rise, with miners having to not only shift away from normal desktops to ASICs hardware but also to build warehouses of hardware created for the sole purpose of mining cryptocurrencies.

Unlike mining with the use of the traditional desktops, which were not created for the mining of cryptocurrencies, these warehouses, better known as mining farms, have no other purpose and run 24/7, 365-days a year.

Outside of the investment into the necessary hardware and land to build a mining farm, the other main cost comes from the electricity required to mine cryptocurrencies.

Mining farms tend to be built in countries that have cooler climates and also lower electricity costs, with mining farms needing to consider the costs associated with, not just running the hardware 24-7, but also ensuring that the hardware doesn’t overheat, the combination of which can have a significant influence on mining profitability.

Farm Mining

While particularly lucrative for mining farms that have been able to capture a sizeable portion of hashrates, mining is key to supporting cryptocurrency blockchains, the mining process ultimately being the validation of transactions on the respective cryptocurrency blockchains.

With the number of transactions anticipated to continue increasing with time as greater adoption takes place, farm mining is likely to be the only viable method of mining to meet the growing volume of transactions.

For blockchains with proof-of-work consensus algorithms, such as Bitcoin, the entire concept of decentralization would be lost without mining and, as mining difficulty increases, more individual miners are pushed out due to rising power consumption and narrowing profit margins.

The shift in the mining landscape has left the mining of cryptocurrencies in the hands of mining farms, which are now considered to have the lowest barriers to entry into the crypto market.

The growth of farm mining is particularly important for blockchains that are run on proof-of-work consensus algorithms, a greater distribution of hash power restoring the ethos of decentralization, by removing the control of blockchain advancement away from the longer-standing mining farms.

The Future

Government regulations and a general animosity towards Bitcoin and the broader cryptomarket has raised questions on whether local power grids will be willing and able to continue supporting the rising consumption of electricity to fuel cryptocurrency mining.

Outside of the animosity is what has become the highly debated impact on the environment, cryptocurrency mining now consuming such large amounts of electricity that the media have begun publishing studies suggesting the Bitcoin mining uses more power than actual mining.

With such concerns and existing government control on the cost of power, mining farms have begun to source their own power, which is independent of community grids that are often either state-owned or subsidized by taxpayer money.

One such mining facility being built in British Columbia is reported to have installed its very own power substation, with 85 megawatts capacity generated from hydroelectricity, the power being generated enough to support a city of 50,000 homes.

Controlling a key cost variable in the mining process certainly makes sense and, with mining farms having generated sizeable income in recent years, particularly over the last 12-18 months, the availability of capital is there to break free from possible state control or influence, those unable to unlikely to be able to compete with the eventual power grid independents.

While managing cost variables is certainly a key step in the process, the other sizeable cost impact is the actual hardware. One can only imagine that there are developers hard at work, with the aim of developing mining hardware that is far more efficient than existing ASICs.

Ethereum – Where’s the Support?

Ethereum

While the recent declines have been relatively mild, largely attributable to the lack of volume and volatility since mid-October, an extended bearish trend has been intact for some time, with ETH/USD having slumped from the first week of May swing hi $828.97 to a mid-September swing lo $167.

Since the mid-September swing lo, ETH/USD attempted a run at the 23.6% FIB Retracement Level of $323.23 in late September, with a high $255, but came up well short and it’s been millpond since for ETH/USD and the broader market, barring a number of anomalies including Bitcoin Cash’s recent moves ahead of Thursday’s hard fork.

For the crypto bulls, the line in the sand is $220, with ETH/USD pulling back on any attempts at a breakout to late September’s $255 high.

At the time of writing, ETH/USD was down 0.88% to $206.93, with the negative bias intact, ETH/USD falling from a start of a day morning high $208.77 to a morning low $205 before steadying, the tight ranges leaving the day’s major support and resistance levels untested.

For the crypto bulls, the good news has been the significant support at $200, with buying appetite evident on any pullbacks to sub-$200 levels, though the lack of a catalyst for the broader market continues to leave ETH/USD pinned back at sub-$220 levels.

For the day ahead, the early losses may be heavier than recent days, with negative sentiment surrounding the Bitcoin Cash hard fork weighing, but with the day’s first major support level at $206.77 there to provide ETH/USD with the necessary support to avoid another reversal to sub-$200 levels, treading water for now may not be a bad thing.

Ethereum Daily Chart
Ethereum Daily Chart

Longer term, the general outlook for ETH/USD and blockchain technology adoption remains positive, with ETH/USD’s position and function within the cryptomarket supportive of an eventual recovery, though this may take some time, regulatory uncertainty continuing to limit any broad-based market recovery.

For the bears, today’s third major support level at $200.56 will be the key test, buying appetite expected to pick up, though any material reversal could see the mid-September swing lo tested before any recovery.

All You Need to Know About the Upcoming Bitcoin Cash Hard Fork

Bitcoin Cash Fork

For the core developers, it was an attempt to retain some level of decentralization in a centralized mining environment, with the Bitcoin mining cartel looking to improve capacity to improve transaction times and therefore income.

Having only been created back in August 2017, a hard fork earlier in the year was relatively seamless, the May hard fork resulting in a pre-fork rally on hopes of a fresh cryptocurrency reward for Bitcoin Cash coins held at the time of the fork driving demand for Bitcoin Cash. The last fork, back in May of this year saw Bitcoin Cash rally from an early April low $600.1 to the first week of May $1,849.9.

The upcoming fork is scheduled for 15th November and, in stark contrast to the fork earlier in the year, Bitcoin Cash has been in rapid retreat in the last week, with Bitcoin Cash sliding to a November low $518.2% on Sunday, the reversal from the previous Sunday’s 18.8% rally to $571.6 seeing Bitcoin Cash down 9.34% over the period.

Hopes of a Bitcoin Cash hard fork rally have been dashed this time around and Bitcoin Cash continues to sit in the hands of the bears, with the upcoming hard fork looking to be far from seamless, there being quite a division of consensus ahead of the main event.

Hard forks are all about consensus and, while there was the necessary consensus in May to support the upgrade, this time around there is no consensus

What is the Bitcoin Cash Hard Fork Looking to Achieve?

Hard forks are not a rare occurrence for Bitcoin Cash, with the team looking to continue making improvements to the platform to make it a more viable option as an alternative to fiat currency than Bitcoin.

For the coming hard fork, the two sides of the fence are:

  • Bitcoin ABC, which is looking to make a number of upgrades, including the introduction of the use of Oracles and cross-chain atomic swaps to deliver a smart contact offering. Forward-looking, the team has also proposed some block adjustments to address scalability down the road, using a technique called canonical transaction ordering.
  • Craig Wright is backing Bitcoin SV and is proposing to increase the block size to 128MB from Bitcoin Cash’s current 32MB, with no other changes. Back in May, the block size was increased from 8MB to 32MB.

The Bitcoin ABC team are against the increase in block size and that’s where the disagreement has occurred, with Bitcoin ABC and Bitman, one of Bitcoin Cash’s largest miners sitting on one side of the fence.

Craig Wright is against the idea of Bitcoin Cash’s blockchain being used for non-cash transactions and canonical transactions, with nChain and the support it receives from one of Bitcoin Cash’s other largest miners CoinGeek, also being against canonical transactions, whilst supporting the proposed blockchain increase to 128MB.

Bitcoin SV, with its support from Bitcoin Cash miner CoinGeek, will be looking to take on new miners in support of Bitcoin SV, with CoinGeek and nChain reportedly having a higher hash power than Bitcoin ABC & Bitman, which is contributing to the downward trend seen in Bitcoin Cash ahead of the fork.

What to Do in the Days after the Hard Fork:

  • Avoid holding Bitcoin Cash coins on an exchange and keep them in a wallet with private keys, a hard wallet preferred.
  • Avoid making any transactions in the days after the Bitcoin Cash hard fork and wait until there is some clarity on what’s going on.
  • Wait for advice on how to access Bitcoin SV coins and which exchanges are supporting Bitcoin SV.

Last Thoughts

While upgrades and enhancements are traditionally a good thing for any product, particularly one so new as Bitcoin Cash, the real issue lies in the breakup of Bitcoin Cash and the creation of yet another possible alternative to Bitcoin as a viable competitor to fiat currency.

The downward trend in Bitcoin Cash ahead of the hard fork reflects, not only a lack of support for Bitcoin SV, with those looking to receive Bitcoin SV needing to hold onto Bitcoin Cash at the time of the fork, but also some anxiety over the future of Bitcoin Cash ahead of the fork.

Some disruption and fallout are to be expected as a result of the ongoing disagreement between the 2-sides and one thing that has become apparent from is the lack of decentralization, an issue that other blockchains have attempted to address through hybrid consensus algorithms that limit the powers of miners in support blockchain development and adoption.

As the war of words between Craig Wright, who claims to be Satoshi Nakamoto, and Bitcoin ABC continues, more pain is likely ahead of Thursday’s fork and the worst possible outcome for existing Bitcoin Cash holders would be for Bitcoin SV to become the dominant coin come the weekend, Bitcoin SV miners currently threatening to mine empty blocks on Bitcoin Cash that would ultimately render Bitcoin Cash useless.

Investors and speculators will be looking at the direction of Bitcoin SV, an IOU, on supported exchanges and the direction of Bitcoin Cash, with where the hash power sits at the day of the fork key to which side comes out on top.

The Steady Cryptomarket: Volatility Remains Low

Crypto market

Following last December’s record highs across the cryptomarket that saw Bitcoin strike an all-time high $19,891, things have not gone according to plan for the Bitcoin bulls and the broader market, with an extended bearish trend striking the markets through this year.

While bearish, with Bitcoin sliding to 2018 low $5,755 back in late June, the market was certainly energized with volumes on the higher side and news-driven moves seeing $1,000 swings in a matter of hours not weeks.

The volatility seen through the much of the year contributed to the uptick in volumes as investors and traders from other asset classes were drawn in to trade the daily swings that were sizeable when comparing to even the more exotic currencies and the global equity markets.

Key to the volatility was the news and investor reaction to chatter from both governments and regulators on the cryptomarket and the need for greater oversight and there are the hacks to fuel government desire for greater control.

China was banning just about everything, while Japan and South Korea introduced more stringent measures to address money laundering and worse. In spite of the shift in the regulatory landscape, volumes continued to hold steady as did the volatility, until October at least.

Few will argue that Bitcoin and the broader market need to go through a number of key events to draw in a wider investor group and, more importantly, the institutional money.

When looking at the global equity markets, by comparison, the Dow Jones is comprised of approximately 80% institutional investor money and 20% retail. For the Chinese equity markets, we’re looking at the reverse, 80% retail and just 20% institutional. There are hopes that this will change as the larger Chinese stocks become included into the MSCI Emerging Markets Index, a process ongoing at present.

Until this process is complete, however, and the stickier institutional money enters the market, the wild swings will continue, with even the Chinese government unable to halt the sell-offs we’ve seen in recent years.

While the good news for Bitcoin is that there are the Bitcoin whales, who continue to hold onto their sizeable number of Bitcoins and hefty returns, Bitcoin and the broader cryptomarket has hit a wall in recent weeks.

The slide in volumes and volatility can be attributed to two main events that have held the cryptomarket to ransom since the summer. The first is the planned rollout of unified rules and regulations for the cryptomarket by the G20, with the second being the SEC’s pending decisions on 9 Bitcoin ETF applications that had in fact been declined in the late summer, only for the decisions to be placed under review.

There may be a difference of opinion on which has had the greatest influence on the broader market and ultimately weighed on volumes and volatility, but when looking at the more mature asset classes, the introduction of institutional money can only truly materialize when there is an appropriate regulatory framework.

China’s inclusion into the MSCI’s Emerging Markets Index is a case in point, where the MSCI held back until there were the appropriate transparency and necessary access to the market.

Can the SEC give the green light for institutional money to begin flooding into Bitcoin and the broader market ahead of a unified set of rules and regulations?

Perhaps the much talked about a slide in volatility through October and the early part of November answers the question.

In the event that the SEC actually approves even one of the 9 Bitcoin ETF applications, the amount of institutional money that will likely actually enter the market, with the existing framework, is unlikely to be close to the sizes that the market has hoped for, not until the G20s rules and regulations at least and that’s been delayed until next summer.

Extensions and postponements have ultimately left sidelined investors on the sidelines and those already holding positions in a holding pattern, the lack of a catalyst creating the millpond effect that is not just evident in Bitcoin, but even with the more volatile cryptocurrencies, such as Ripple’s XRP.

Going back to the end of the 1st quarter, Bitcoin’s volatility in the month of March stood at 4.69, while in October it had fallen to 1.75 and for the current month sits at 0.85.

For Litecoin that tracks the broader market more closely, therefore a fairer comparison when looking at volatility, volatility in March stood at 4.93 before sliding to 2.93 in October and 2.89 for the current month.

Are the days of volatility and high volumes over?

Unlikely, when considering the maturity of the broader market and particularly when considering the anticipated impact of an eventual approval of cryptomarket ETFs and a more rigid regulatory framework to support the introduction of institutional money.

Which comes first remains to be seen, with investors now sitting patiently waiting for the SEC’s post 5th November decision on the 9.

EOS Daily Analysis– 13/11/18

EOS

Key Highlights

  • EOS gained 1.13% on Sunday, following a 0.44% rise in Saturday, to end the day at $5.4910.
  • EOS fell through the first major support level at $5.397 and second major support level at $5.3641 to an early afternoon intraday low $5.2920.
  • A late rally saw EOS break through the first major resistance level at $5.4658 and second major resistance level at $5.5017 to hit an intraday high $5.5221.
  • The week’s loss reaffirmed the extended bearish trend formed at the end of April’s swing hi $23.029.

EOS Price Support

EOS gained 1.13% on Sunday, following on from a 0.44% rise on Saturday, to end the week down 0.44% at $5.491.

Bearish through the first half of the day, EOS slid from a start of a day $5.4299 to an early afternoon intraday low $5.2920, the reversal seeing EOS fall through the first major support level at $5.3970 and second major support level at $5.3641 to call on support at the third major support level at $5.2953 before steadying.

A late in the day broad-based cryptomarket rally drove EOS through the day’s first major resistance level at $5.4658 and second major resistance level at $5.5017 to an intraday high $5.5221 before easing back to $5.4 levels by the day’s end.

In spite of the week’s gains, the extended bearish trend formed at late April’s swing hi $23.029 remained firmly intact, with EOS continuing to fall short of the 23.6% FIB Retracement Level of $8.6267.

At the time of writing, EOS was down 1.68% to $5.399, with Sunday’s late in the day rally hitting reverse in the early hours, EOS falling from a start of a day morning high $5.5245 to a late morning low $5.3957, the moves through the morning leaving the day’s major support and resistance levels left untested.

For the day ahead, a move back through to $5.435 by the early afternoon would support a run at the first major resistance level at $5.5781 to bring $5.6 levels into play, though with negative sentiment weighing on the broader market ahead of Thursday’s Bitcoin Cash hard fork, a run at the morning high $5.5245 may be as good as it gets for EOS in any 2nd half of a day recovery.

Failure to move back through to $5.435 by the early afternoon could see EOS come under greater pressure later in the day, with a pullback through the day’s first major support level at $5.348 likely to see EOS call on support at the second major support level at $5.2049 before any recovery.

EOS Daily Chart
EOS Daily Chart

Looking at the Technical Indicators

  • Major Support Level: $5.3480
  • Major Resistance Level: $5.5781
  • Fib 23.6% Retracement Level: $8.6267
  • Fib 38% Retracement Level: $11.3790
  • Fib 62% Retracement Level: $16.8280