Yesterday, I thought that Bitcoin Cash was going to work out, I feel that competition in crypto currencies is a good thing especially with Bitcoin.
Everything was looking pretty good right after the fork. In only a few hours several blocks were mined, they seemed to be getting discovered faster. A number of the exchanges created matching funds for those with Bitcoin on the exchange. Prices looked impressive. If you had BTC on an exchange like Bittrex, they gave you equivalent amount in Bitcoin Cash.
Things are not going that well though just under the surface.
There are some serious problems, and there is now a finite amount of Bitcoin Cash on the exchanges. There is a lot of demand relative to the existing supply; this is creating a false picture.
The prices you are seeing are not reflective of real price discovery. As a result, prices have been soaring as high as $1333 USD on Wednesday. You can think of this as a game of musical chairs. There is some interest in Bitcoin Cash but not very many coins on the exchanges; as a result, you have a finite supply being chased by a large number of speculators. Everyone with Bitcoin Cash outside of the exchanges wants to get involved in this new market. Unfortunately, they can't.
First of all, most of the wallets have not been upgraded to support Bitcoin Cash. Some wallet companies are probably working furiously to make the required changes. There is another problem, however. Bitcoin Cash is having troubles adjusting the mining difficulty. They are still stuck on the old level of mining difficulty that regular Bitcoin is using. It's a mathematical algorithm that takes awhile to adjust.
Today the miners have been only able to mine a block every 200 minutes or roughly every 3.5 hours. Today there was an eight hour period and a 13 hour period where no blocks were mined.
It's difficult to get actual data on hash rates, but I suspect the number of miners has likely gone down today. If you are a miner and you are not finding blocks than the incentive to mine a coin is diminished. It takes six blocks for the mining difficulty to adjust by 20%, so we are likely a couple of days away from having regular sub-30 minute blocks.
You need consistent block times to keep people happy on the exchanges and for wallets to work properly. That's why they have not opened them up for use. Exchanges are going to want several confirmations for deposits, which would take at least half a day with the current slow block times.
Now, what is going to happen when the wallets are finally opened. Well everyone wants to sell or trade their Bitcoin Cash, a majority seem to want to sell. I think people will panic sell. The question is who is going to step in and buy. The price is likely to rapidly go below $100 USD and probably a lot lower.
The volumes that are currently shown on places like CoinMarketCap are just showing the same people trading amongst themselves on the exchanges. There is no real price discovery occurring, volumes are really small compared to the amount of coins in "circulation".
There are very few exchanges planning on accepting Bitcoin Cash, and I expect that there will be some serious demand which will slow down these exchanges. I think there is a high chance that some of these exchanges will grind to a halt.
If you currently hold BTC don't expect to get much for your Bitcoin Cash. If you are fortunate and know what you are doing, you may be able to sell before everyone else. The other option is to just hold for the long term. The high prices are an illusion, and the overall market cap is even more ethereal. Some of you may be able to pick up Bitcoin Cash at the bottom if you time it well.
It seems like this entire forking process could have been handled better. This fiasco will likely dramatically reduce the enthusiasm for Bitcoin Cash; perhaps they can recover over the coming months.
Ryan Herbison is a writer and editor for WeAreChange. He has an extensive background in Internet technology and communications.
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