Although Bitcoin is currently trading at an all time high, people are trying to understand why this is so.
There is indeed mass acceptance in the promise of Bitcoin and many people seem to want to get involved and purchase some coins before they head for new highs. However, this is quite a dangerous tactic especially when Bitcoin is about to head for a contentious fork in November.
Unlike to Ethereum hardfork, this has not been par for the course. It has been quite adversarial with many people who are wedded to their positions no matter what. You had two competing factions who actively viewed the others as trying to sabotage the network.
In terms of how contentious this split is, there are no previous examples to go by. If there is a split then you will have two competing technologies that try to kill the other chain through a number of methods.
Bitcoin Traders are Irrational
Bitcoin traders seem to be getting into Bitcoin because of the Fork and not in spite of it. They want to be able to hold the coins going into the fork. This is puzzling to some of the core developers who don’t know how people can invest so much money in an upgrade that even the developers themselves don’t know the effects of.
However, what seems to be driving these investors is the view that the previous hardfork in August was a success and resulted in two new coins. These were the original Bitcoin chain and Bitcoin cash. Bitcoin rallied in price and you had another coin that was also valuable.
This, to the traders is a great asset. Instead of being worried about the price of the Bitcoin after the fork, they were emboldened by the fact that the price of the combined holdings was worth much more than the single Bitcoin prior to the fork.
Harry Yeh, who is a managing partner at an Investment firm, Binary Financial, says that investors are only looking at the resulting impact of the two coins. Moreover, these are not newbies to the cryptocurrency scene but are well versed in the nature of these protocols.
Although these investors may be making interesting points about the upcoming fork, there are many who claim that these notions of value are misguided. This is because the fork of Bitcoin cash was considerably different from the one that is upcoming.
The Bitcoin cash fork was done so that those who were in favor of it could create a competing cryptocurrency with a 8mb block limit. The SegWit2X hardfork is quite different. It is a contentious split among two groups both of whom want to make their vision the actual Bitcoin.
Yet, this is where the traders are still interested. Although there is a risk that it could be an ugly split, traders are fans of more risk as it can increase their returns. This is what they are looking for prior to the split.
Yeh claimed that in traditional finance, people hold the view that if your asset splits into two, then they would be worthless. However, in the cryptocurrency world things just don’t work like that. When there is a split it can indeed create value.
He uses the example of the fork in Ethereum last summer where you had Ethereum branch off from the Ethereum classic. They both fell right after the split but seemed to rise after that and have now created a great amount of wealth for their holders.
This thinking of creation of value is the reason that many investors are betting that there could be an increase in value of Bitcoin and hence the reason that they are buying large amounts of it.
Just Bitcoin Optimism
Although there is the view that many investors are buying into the fork, others think that this could just be general optimism in the market about buying Bitcoin. These would just be the new investors who want to be able to join the action.
For example, Arthur Hayes who used to trade at Citigroup and now runs a large digital exchange claimed that there is a general feeling of market optimism as more and more people want to get involved in Bitcoin.
They saw the impact of the Chinese attempt to shutter exchanges and the subsequent recovery as proof of the robustness in Bitcoin. Hence, investors are not too concerned about the hardfork.
Should you Trade the Fork?
What could indeed be profitable going into the fork is trading on the volatility of Bitcoin. When you hold the coins, you will have to deal with the split and managing the two resulting coins. However, when you are trading the coins you can make money on pure movements in the asset.
If you are trading on an exchange like coinbase, you are actually holding the underlying coin into the split. However, when you are trading CFDs and futures on the coins then you can make the most of the volatility.
There are numerous CFD brokers who are regulated and will allow you to trade any amounts of cryptocurrency. Plus500 is probably one of your best choices. You can read more about them in this comprehensive Plus500 broker review.
Once you have an account, you can trade the Bitcoin fork and the volatility. Due to the fact that they also have altcoins, you can trade the Etheruem hardfork this Monday as well.
All eyes on the Miner Support
One of the most important metrics as to whether there will indeed be a hardfork is the amount of miner support for SegWit2X. As more miners stop signaling their support, the likelihood of a fork decreases.
Already, the support has fallen quite a bit this week with some mining pools pulling out. If there is no fork, this could also be positive for Bitcoin as it will mean more certainty and more belief that there is only one real Bitcoin.