Free Money
Many experienced traders were saying leading up to August 1st that "free money is not possible." "Bitcoin will drop in proportion to the value of Bitcoin Cash."
Just as a study, let's look at the current price. Bitcoin $2690. Bitcoin Cash $365. Together, this equals $3,055 which is a new market high for bitcoin. Higher than what bitcoin has been trading at.
Now, there is a point I want to bring up and it is sort of a childish "I told you so." Many people inside of /r/bitcoin on reddit would dramatize how damaging a hard fork would be to the price of bitcoin. How that these movements like bitcoin unlimited are anti-bitcoin and if they split, it would be a disaster to the network. "People are going to lose money if there is a hard fork!!"
A lot of people just did not know better. Others were intentionally trolling to cause hysteria as a means of propaganda for their positions.
Yet the fact of the matter is free money was created. People may scratch their heads on how free money is possible. Let me go through some scenarios which I have seen on the market which cause "free money".
Price Movement Phenomena
One example is the idea that for prices to increase or decrease, no one needs to trade! People think if prices increase, that must mean more buyers. This is not always true. On very illiquid markets you will see a phenomena of bots justling around prices, without there being any trading volume. Or other times, you can have a price move on very low volume, with very low price support. The market can quote a good price, but it does not mean that price holds well if you sold a good share of coin. Even if that new different price would hold, it does not mean necessarily that any significant volume of trading got the price to where it was at, if say a new large order came on the market to support that price, without that order ever being traded against.
In the case of the BTC fork, we can understand the following:
- No 'intrinsic value' was lost in bitcoin compared to prior to knowing of the hard fork, and after the hard fork occurred, meaning bitcoin is fundamentally the same before and after the event
- When the market learned there would be a Bitcoin Cash fork, the value of Bitcoin temporarily increased to account for this, and the market estimated the BCH price by the futures, so during this period Bitcoin received added value by the market which it did not previously have
- Due to the price movement phenomena outlined above, value was attributed to Bitcoin Cash, -without- bidding up BCH from 1 USD all the way up to $365 USD, meaning a value was assigned to a new coin and the speculative value had created market value from "thin air"
Why might BCH have value?
- Marketing, people know about Bitcoin Cash and now BCH has a very wide distribution of coin, this is something that many start-up coins wish they had
- Different planned scheme for development and transaction volumes
By splitting BTC and having an alternate, well marketed community, having a coin with a wide distribution and a different development roadmap, the hard fork created value.
Now some days from now, a crash could happen just like it occurred with ETH and ETC. Very likely, then, people will blame the hard fork. I do not know for sure, but the same thing happened with ETH + ETC. Initially, everyone who held through the ETH + ETC fork was sitting on a fat profit.
Then some days later, the ETH + ETC crash ensued and everyone was complaining how the hard fork damaged Ethereum. (The people who were not smart enough to sell when they were sitting on a very nice profit.) Then after those crashes stabilized, holders of both ETH and ETC saw large gains, far past where the hard fork happened.
Somehow the factual evidence of ETH + ETC was lost and I rarely ever hear few people mention this. The media cycles had us believing that value was lost, that people lost money because of the split. Somehow crypto media can steer what people think about crypto more than the prices recorded on charts. Now we have a second instance of data proving that major hard forks do not cause crashes, 2 out of 2 times, they have increased total market cap. It is because of the speculative value of a well marketed, well distributed altcoin which comes into existence. This new value created does not require any additional outside investment, because prices are bench-marked initially by traders, without a huge capital inflow to bid the price that high.
Excellent analysis. As I'm writing BTC is at $2,704 & BCH is at $451. You can look at BTC as now holding tremendously more value as it's true derivative BCH just captured 17% gains. It created another 6-7 billion of value in the market from nothing. Truly incredible. I've been thinking that if BCH garners support moving forward it could affect Litecoin in the long run.
Good on you to put intrinsic value in quotes.
Yes, it's a funny concept with crypto. Has value, even though it's worthless.
Or the concept of intrinsic value doesn't exist at all since all value is subjective. Something can't have value just because it has value. Someone needs to value it.
Maybe this is a dumb philosophical point, but I would always argue with my finance professors and finance analysts that the intrinsic value metric was always dumb.
Yeah, it kind of exists with physical objects, kind of. If we assume there will be industry of some sort, then as a fundamental mechanic, a given elemental material may be absolutely required to achieve an industrial result, or that material may be the most economical. So there is intrinsic value in that sense, assuming industry. Dollars have intrinsic value, they are worth the paper they are printed on, for example. :)
What do u expect now , market drop or high?
I think BTC still drops, and I think BTC gets affected worse than the other coins that have already crashed. ETH & XRP could still decline, but they are near bottoms. I just don't see a bottom in BTC. Maybe BTC just stays up there above 2400, but if so, I would like to see more sideways movement before we decide it is done declining.
It was definitely free money. A lot of people treated it as though it was similar to company paying out a large dividend which would cause the company's stock price to go down.
Yeah, I understand why people think that. To a degree it does behave like that at the very end. That said, notice the total market cap of all cryptos is hanging up higher today without a big bitcoin rally. Sitting at 100 bil with bitcoin still trading in the ranges it had been. BCH added the 6 bil to the market.
Yes, I actually noticed the total market cap earlier. Without checking the prices of each cryptocurrency, I thought that there was either a massive BTC rally or money was flowing into the alts. After seeing it, it was mostly just BCH being added to the total market.
Yeah, exactly. And the oddball thing is, that value is added without a bunch of money being put to work in the market from outside investment capital. Traders just pick a BCH price, and trade it there, and that becomes the added market value. Economics professors aught to look into this because it's strange. Really doesn't happen too much in the stock world or with traditional currencies. It's almost as good as growing money on trees.
This is a very astute analysis. What altcoin will benefit from this BTC and BCH drop, if any, or will we see a drop in the crypto market cap altogether. Personally I think it is time to buy more Steem Power.
It's hard because if BTC drops doesn't mean other stuff would rally, being priced in BTC. Might rally against BTC but still lose value. That said, I think STEEM at about $0.80 is a buy. Where it is at now is okay, but it saw 80 cents not long ago. Just did a Fib chart of STEEM/BTC. It's trying to rally off this Fib level, except it's hit this level 4 times now, so it's having difficulty going higher off of it. If I thought crypto was in a bull market higher I might be more positive on it. Maybe I change my tune if I see all the altcoins continuing to swallow up bitcoin or something, pushing the market higher. Some are due for a rally.
The exchange I am using lets me trade BTC for cash then if I want to buy other coins, I can buy other coins (the popular ones like ETH, Ripple, Dash) straight with cash. Before, I used to think in terms of other coin to BTC ratio like ETH/BTC but if I think that the whole market is going down (like in June when $30-$40 billion moved out of the market), I convert it to cash and wait it out.
Yes, Steem under $1 is a bargain in my opinion. I always try to accumulate Steem when it is down.