Bitcoin cash was one of the marvels of the bitcoin bubble. It is a fork from bitcoin. A fork of a cryptocurrency takes place when someone, anyone declares that a blockchain is going to be transferred to a new set of rules and network infrastructure.
The blockchain is a public ownerless database information, mostly transaction data, and anyone can get a copy of it and load it into their own system. The new system, which is likely a hacked about about version of the original code running the established crypto, is the new fork, it could be called Clem coin, bitcoin dung, utrillium (actually not a bad name for a new coin) or whatever. The fork then takes on a life of its own.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Bitcoin cash was a fork brought into existence to scale bitcoin-style transactions by having bigger blocks. These bigger blocks can contain more transactions and therefore allow a lot more business to flow through the system. Bitcoin’s system can get congested and fees can skyrocket and the time it takes for coins to go from one person to another can rise steeply. The bitcoin cash fork was to create a new crypto coin mostly like bitcoin that would not suffer from this.
As a factor of the immaturity of the cryptocurrency industry nothing happens without an uproar and the launch of bitcoin cash was no exception. What happened next, however, was at the time unique.
As a fork of this kind takes another coin’s existing blockchain, all the owners of coins in the old chain get the same coin in the new coin. That meant that bitcoin owners automatically got coins in bitcoin cash. Most imagined this would be the same as a spinoff of a company. Companies spin out new listed companies all the time.
So image a stock, one that has a bank and an insurance company as its businesses. The company decides to fork itself into two companies. Shareholders will get new shares in a new company that has the bank injected in it and will keep the share in the old one. The share price falls in the old company as much as the new share trades at. That way no or little money is magicked out of thin air from the get go.
We may have learned by now this is not how crypto works. When the fork came out, bitcoin did not fall and bitcoin cash went through the roof rising from the low hundreds to shoot quickly above $1,000. It was free money for bitcoin holders who could get their hands on their bitcoin cash by navigating the technical issues, which were mighty. I sold mine on day one in the $800s, marvelling at the windfall and the reverse logic of blockchain.
You can make all sorts of arguments for why this money from nowhere event occurred but the simplest is, it took place in one of the biggest market bull runs in recent history, the bitcoin bubble. We could drill down into that but who needs an autopsy.
Now bitcoin cash has forked itself with two opposing parties throwing millions of dollars to try to establish their master plan for bitcoin cash as the future or at least main future of that blockchain.
It is very colorfully reminiscent of tech in the 1980s where upstart-company CEOs couldn’t resist insulting each other on their way to bankruptcy or zillionaire status.
This though is a distraction. How do we make money from this in a bear market for crypto, the so called ‘Crypto Winter?’
First and foremost, you need to decide if bitcoin etc. is going to $0 or $hero.
If you don’t know don’t play.
Personally, I’m sold on blockchain and virtual currencies opening a new chapter for global economics, so I’m just plotting my course to try and optimize my upside while minimizing my downside.
If you want evidence as to why blockchain is not a flash in the pan, consider the incredible mainstream interest in bitcoin and its ilk in comparison to your average $200 billion stock. U.S. stocks, at least for now, have a $25 trillion market cap yet bitcoin trumps both Nasdaq and NYSE on Google search. This audience is what makes markets and crypto is a monster.
So what to do with bitcoin cash?
In a nutshell, wait for the dust to clear then buy some coins in the main winning fork. It’s likely to be bitcoin cash ABC, but the other fork, bitcoin cash SV, could win out–but don’t bother caring. Let the dust settle and when everyone’s forgotten about the mess, grab some.
It’s not a clever strategy, but it should turn out smart. Crypto is a primitive market strewn with the most massive inefficiencies. As such you don’t need to deal in market nuances in the same way as you must in stocks.
Crypto is in a bear market, bitcoin cash forks fighting for dominance will hurt bitcoin cash’s value. Once these two are out of the way the coin will flourish and that will mean a price rise.
The thing to remember: markets crash in Ws. So buy the last leg, not the first crash down or the dead cat bounce, but the aftermath when everyone is crying over their losses.
When you read the headline ‘Bitcoin Cash Is Dead’, and the more mainstream the media headline the better, wait a few days, then start to buy. The same will go for bitcoin too.
But let it settle, markets take much longer to recover than fall.
Disclaimer: I own bitcoin and many other altcoins.