Fork Drama Sends Cryptocurrency Markets Spiraling Past Double Digit Losses

The first major contentious Bitcoin hard fork, Bitcoin Cash, which took place just over a year ago, had a massive positive impact on the global market capitalization of cryptocurrency. Bitcoin Cash is now undergoing a contentious fork of its own, but market reception has been far different. Everything is tanking with the fork event just hours away.

The days leading up to the Bitcoin Cash fork in 2017 sparked a frenzy for Bitcoin, with speculators looking to cash in on a two-for-one deal on their coin purchases. At the start of November, a similar pattern was forming for BCH. The coin saw impressive gains of almost 50% throughout the first week of November. However, today, just hours before the November 15 fork snapshot (approximately 9:00am PST), these gains have been erased alongside massive losses throughout the market as a whole.

From lows earlier today, the global market cap of cryptocurrency saw a loss of almost 15%, or US$28 billion. Though it has since seen a minor rebound, today’s dive still represents a double digit loss. With the Bitcoin Cash fork, which will split the network into Bitcoin Cash ABC and Bitcoin Cash SV, just hours away, it is anyone’s guess whether these losses will be reversed of if they will continue to grow at fork time. For now, we can look at what might have caused this price movement.

Exchange Hesitancy

Exchanges across the board are expecting difficulty in preparing for the fork, particularly those that offer BCH futures. Coinbase has already announced that they are going to completely freeze all Bitcoin Cash trading and activities an hour before the fork (8:00am PST).

While this is a major decision, perhaps more surprising was OKEx’s last minute decision to terminate their BCH futures a full day before the fork. The justification behind this call was to prevent potential market manipulation. BitMex, who also offers Bitcoin Cash futures, has elected to keep trading open. As a result, BCH derivatives are currently trading more than 35% lower than the market price for BCH, at a price of 0.0455 BTC on BitMex versus 0.0765 BTC on other exchanges. Of course, these derivatives will not be granted Bitcoin Cash SV, so it is possible that BitMex could represent a sound valuation of BCH ABC post-fork. Regardless, the massive discrepancies and unexpected shutdowns across exchanges are certainly grounds to weather confidence.

SPECIAL ANNOUNCEMENT: All Bitcoin Cash (BCH) futures contracts will stop trading at 9:05am and be delivered at 10:00am Nov 14, 2018 CET (UTC +1) due to the upcoming hard fork. We will provide a detailed explanation shortly.#OKExAnnouncementhttps://t.co/yh3p46tirc pic.twitter.com/oqioSUOUsf

— OKEx (@OKEx) November 14, 2018

Malicious Activity

What happens when a single entity has the means to 51% attack a blockchain? Depending on your interpretation of the event, this is exactly the case with the upcoming fork. Primarily supported by self-proclaimed creator of Bitcoin, Craig Wright, Bitcoin Cash SV (which stands for Satoshi’s Vision) is predicted to control a majority of the entire BCH hashrate. This is at odds with individuals behind each network, as a vast majority of Bitcoin Cash nodes remain in support of BCH ABC.

Major exchanges and influencers seem to primarily be backing ABC, so it is unlikely that SV will be able to best its alternative in terms of market cap. However, if Craig Wright’s fork can majorly disrupt or even dismantle ABC, it suggests that it is entirely plausible that a single party can destroy an entire network. Of course, this completely undermines the resiliency and decentralization of the technology.

Gaming Hashrate

The Bitcoin hashrate has steadily decreased in preparation for this upcoming fork, as certain miners have elected to speculate on the value of SV by mining Bitcoin Cash over Bitcoin. Currently, BTC is valued as 12% more profitable to mine than BCH, but the value of the forked coins could very well exceed a 12% loss in immediate profitability.

Bitcoin’s hashrate has declined by about 25%. Many experts suggest that Bitcoin’s price “floor” is supported by the hashrate. If Bitcoin is no longer profitable, miners will shut down or go elsewhere, which will allow the price of BTC to continue to fall. Despite the constant decline throughout the year, hashrate has continued to increase or at least remain steady. It was contended that US$6,000 was the price floor given the previous hashrate, but with that mining power gone Bitcoin has reached year-to-date lows in the low US$5,000s.

It is expected, or at least hoped, that markets will start to return to normal after the fork is over and done. If Bitcoin Cash SV has a sustained impact on the market, the longevity of cryptocurrency could be in serious contention.