EthereumPrice

Thanks to a sky rocketing price, Ethereum has grabbed the attention of many hundreds of thousands of new investors. Those same investors are no doubt looking at the last 48 hours in disbelief – possibly renewing some initial scepticism about the future of crypto. The 24 hour changes on coinmarketcap.com are – quite frankly – a bloody mess. But hardened cryptoasset investors will be drooling at the sight.

We have been here before. We’ll be here again. And the fundamentals of Ethereum and others remain unchanged.

For those looking for some speculation as to what happened in the last 48 hours:

• This Senate bill in the United States grabbed mass attention.
• Bitcoin may split in two in the first week of August.

V1.3 Release notes:

• Graphing updated to allow for more granularity
• Timeframe preferences are now available at the top right; no longer forced to only “Today’s” changes
• Users can now reset cookies from the preferences menu – deletes all cookies and resets to standard ETH/USD weighted average price
• 5-minutely data will now be available for up to 1 month (collecting from now)

I will be adding some useful information to help new users purchase and secure Ethereum in the coming weeks.

Amidst the wall-to-wall hype in the cryptoasset space, a storm is brewing in Bitcoin that may setback much of the recent gains. Those new to Bitcoin will be unaware of an impending hard fork (blockchain split) and what its implications may be on the price of not just Bitcoin, but Ethereum too. It is worth taking the time to understand what is set to happen in the next 2 months so as to avoid being caught up in the panic.

What’s the problem?

Bitcoin is having difficulty scaling to meet its increasing demand. The network cannot scale because each Bitcoin “block” (set of validated transactions with a 1mb limit) is full. As a result, transactions are being left in situ for hours and days before squeezing their way into a block. A side effect of this is that users are spending more and more on transaction (tx) fees in the hope that it will incentivize a miner (who receives the tx fee as a reward) into including their tx in a block.

There are solutions to this problem, however these solutions are contentious. So contentious that a community of Bitcoin idealists, developers, and business leaders have created an orgy of character assassination and conspiracy theories. It’s not pretty. After more than 2 years of debating these solutions, it appears that the route forward may be coming to a head in the very near future.

Bitcoin Splits

I want to avoid details of the different scaling solutions, and instead look at a likely split in the Bitcoin blockchain as a result of a grassroots user activated soft fork (August 1st) or a proposed SegWit-2Mb hard fork which has widescale commercial agreement. Both will put Bitcoin in a better position to scale, however they are also both likely to create 2 versions of Bitcoin.

Those who have been following Ethereum, will know that – following a large scale exploit of an Ethereum smart contract – the Ethereum chain split in two. Due to sustained support for both the existing and new Ethereum chains, two coins were born from one – Ether and Ether Classic. The same is looking more and more likely to happen to Bitcoin; but will “Bitcoin Classic” survive in the same way that ETC has?

Here’s a likely timeline for a Bitcoin chain split. For simplicity, we are going to call the second Bitcoin chain, “Bitcoin Classic”:

Users get both coins
First, it’s essential to point out that if you are a proud owner of Bitcoin, then you’ll also be a proud owner of Bitcoin Classic. When a blockchain splits, the number of coins you have (at the time of the split) on the Bitcoin chain are mirrored on the new one. Instructions on interacting safely with both chains will become available nearer to the time.

1. Users/miners/nodes choose a chain
For a period of time there will be economic activity on both chains. It may be that 100% of activity moves almost immediately towards one of the two chains and peace is restored in the world. Or perhaps economic activity splits across both chains in some fashion. The reality is we don’t know if both chains will survive, and at what capacity they will survive. However, we do know that this will become very clear in the hours and days following a chain split. Those with Bitcoin can then decide what to do with their new Bitcoin Classic coins.

2. Critical mass takes hold
Once it becomes clear which chain is “winning” – ultimately which has the most hash (mining) power – then a bigger migration towards the winning chain may occur, potentially dismantling what is now considered the “old” chain. In Ethereum’s case, we saw that following the split, the vast majority of support moved to Ethereum and Ethereum Classic was left at a fraction of the value of Ethereum (7% as of today).

3. Bitcoin Classic
Given that any meaningful support towards either chain would result in its survival, I would suggest that it is likely we will see an established “Bitcoin Classic” coin following a chain split. I would also speculate that a split will happen in the next few months, with a “crypto run” occurring in the build up to the event, fuelled by uncertainty and confusion. Such a run would heavily reduce the price of not just Bitcoin, but Ethereum and dozens of altcoins. Billions could be wiped off of the cryptoasset market cap in a matter of weeks, resulting in a short period of uncertainty followed by a several month long period of stability and then growth.

Alternatively – and possibly most worryingly – there may be no scaling implementation at all. Bitcoin may go on for another year of high fees and slow transactions. Who knows what that might mean for Bitcoin’s already waining dominance on the crypto market cap.

Where does this leave us?

None of this takes away from the fundamentals of public blockchain based cryptoassets. A short term panic will only make the asset class more appealing to new and existing investors. Even if Bitcoin and Bitcoin Classic are total failures and the currency crashes into oblivion, another cryptoasset will take its place. Whilst I am extremely bullish on Bitcoin over the long-term (Bitcoin Classic or otherwise), it is more apparent than ever that a diverse cryptoasset portfolio is essential.

Bitcoin, Ethereum and a dozen or more altcoins have all had dramatic price increases in recent weeks. Volatility is as high as ever, but the general direction for a huge number of these coins has been upwards. This increase in market capitalization across multiple cryptocurrencies hasn’t been seen before, and could be indicative of a large stream of “new money” funnelling into the ecosystem. In the past few weeks, there have been a series of positive news stories and developments in the blockchain industry as a whole including:

• SEC gives Bitcoin ETF a possible second shot
• Japan legalises Bitcoin; causing massive demand in the country
• Ethereum ENS launches, attracting $10M in auction bids
• Japan’s largest bank partners with the consortium blockchain, Ripple (XRP)
• Russia plans to legitimize Bitcoin; with the country’s largest retailer Ulmart, announcing they will accept the cryptocurrency
• Australia to treat Bitcoin “like money” from June 1st 2017, dramatically improving its position with regards to taxation
• Litecoin successfully activates Segregated Witness (a scaling fix which can be applied to Bitcoin)
• ShapeShift.io announces its plans to become a smart-contract driven decentralized exchange (full details not yet known, but anticipated to be operating on the Ethereum blockchain)

Investors have always been nervous of cryptocurrency competition, often speculating that one’s rise may lead to another’s decimation. What has transpired in 2017 so far is that an increase in cryptocurrency adoption as whole has tremendous effects on the price of each coin, and that a price rise of one does not come at the expense of another. This year is showing itself to be the year of the blockchain ecosystem (Bitcoin, Ethereum and altcoins), and I only anticipate that this will get stronger as interoperability between chains takes hold in 2018.

For the first time in its history, Bitcoin has broken through the £1000 milestone. The rally, which comes ahead of the upcoming SEC deadline to approve or reject the Winklevoss brothers’ proposed Bitcoin ETF (exchange traded fund), has been one of the most sustained seen to date. A Bitcoin ETF (there are several in the pipeline) is speculated to inject over $500m into Bitcoin’s “market cap” over the coming months, and the bull-run currently being witnessed would suggest that investors are predicting approval from the SEC. Continued capital controls in countries such as China and India are also possible contributors to the recent price rally, along with further mainstream media attention from the likes of Bloomberg and CNN.

If the SEC were to reject the Winkelvoss ETF, it is likely that price of Bitcoin would fall below the $1000 mark for the first time in several weeks. However, with so many other Bitcoin ETF filings currently under review, it is arguably only a matter of time until one receives full SEC approval. Should the current Bitcoin ETF proposal be rejected, it may well be an opportunity for those not yet invested to get some skin in the game.

The SEC will make their judgement on the Winklevoss Bitcoin ETF on March 11th.

If there was ever any doubt about China’s critical role in Bitcoin then yesterday it was crushed. The People’s Bank of China (PBoC) have, for the second time in a month, created enormous volatility in the Bitcoin market after they intervened in the operations of the top Chinese exchanges. The last 7 days of rallying was wiped out in its entirety following an announcement by OKCoin and Huobi.com that Bitcoin withdrawals would cease for at least a 30 day period.

The announcement comes after the Chinese central bank applied pressure on these Bitcoin exchanges to clean up their act; demanding that better regulatory checks were put in place to help enforce capital controls and money laundering legislation. While such regulation was not entirely unexpected following earlier events in January, the shock was enough to send the Bitcoin price plummeting by over 10% before making a small recovery.

The PBoC’s intervention has cast further fear over China’s ability to crush the price of Bitcoin through crippling regulation. Bitcoin maximalists would argue that the cryptocurrency’s value lies in its free market principles and increased levels of privacy; on the other hand, many advocates of Bitcoin consider this move to be a positive step in legitimising Bitcoin and helping to reduce price volatility through a solid regulatory foundation. Those interested in a conspiracy may theorise that insider trading is at play. Should China perceive Bitcoin as a the next global reserve currency, reducing the price and purchasing stacks of Bitcoin “while it’s cheap” may be a shrewd (yet highly illegal) move by the Chinese government.

Despite some negative shocks to the price of Bitcoin, the currency is up by well over 150% year on year and even this latest decline has only put Bitcoin back by 8 days. With the possible approval of the first Bitcoin ETF coming up in March, who knows what will happen to the price in the weeks ahead.