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Hodl Steady for Strong Bitcoin Price Rally After August 1st

Posted 30 July 2017 Hodl Steady for Strong Bitcoin Price Rally After August 1st
Written by Jon Gulson
Markets dislike uncertainty, and in this regard, bitcoin is no different to any other asset.

This may seem incongruous with the 500% bitcoin price increase seen over the last 12 months; but for much of 2017, the bitcoin community has engaged in debate and rancour concerning the path of future direction.

Feelings can run high and as a result, the month of July has seen volatile price swings. However it would appear that some consensus has been reached, with the ‘bitcoin civil war’ close to conclusion (for the time being at least). 

This should augur well for bitcoin, but let’s take a look at what has happened before considering the forward price.

The Bitcoin Civil War

The so-called bitcoin civil war emanates from transaction capacity: as bitcoin’s popularity has increased, ‘full blocks’ slow confirmation times and cause an increase in transaction fees. This makes it harder to justify sending the smaller sums and micro payments it was originally designed for.

This then leads to bitcoin’s most common criticism: that bitcoin can only handle a fraction of transactions in comparison to other payment networks like VISA (seven per second as opposed to thousands) because of the one megabyte block limit. 

Visa and Bitcoin

Finding a resolution to this problem has pitted two parts of the bitcoin community against each other: developers and miners. The big fear being that if no consensus is reached, the bitcoin blockchain would split in two (or hard fork – where an upgrade to the network is not backwards compatible) producing two different coins.

From the miner’s point of view, they operate energy intensive businesses where transaction fees are a key part of their income. From the developer’s point of view, they don’t want to upgrade the network with untested code and cause future problems.

And from the community’s point of view, they are wary of a solution which places too much influence in the hands of larger interest groups (decentralisation is a mantra of bitcoin).

Peace Breaks Out!

On July 21st a large majority of miners signalled their support for a solution known as segregated witness (or SegWit) which packs blocks more densely. The intention is to then double the block size in three months’ time.

Whilst this has provided a resolution to the current impasse, it does not mean the problem won’t resurface: developers are wary it could take longer than three months to implement a block size increase and have stated twelve to eighteen months is more realistic.
What this all demonstrates however is the decentralised network effect of bitcoin incentivising problem solving.

The main incentive for miners (the block reward) is currently worth $30,000 per block. And with approximately $2bn worth of liquidity coming into bitcoin every day in 300,000 transactions, these incentives will only increase as bitcoin becomes stronger.

Moving Forward With Bitcoin

Fears of a fork have been alleviated. The new bitcoin cash coin (bcc) which comes into existence on August 1st is not a split of the bitcoin blockchain – it is an alternative coin, albeit one with bitcoin in its name. And whilst some say there are other cryptocurrencies with better governance models, what bitcoin provides is an alternative to institutional based decision making.

As it becomes apparent that bitcoin is still alive, well and kicking; then positive sentiment should return as we move into August. Making price projections is difficult, but bitcoin’s price has proved remarkably resilient in troubled times.

This proves bitcoin is binary. It will either succeed, or it won’t. And if it is not going to succeed, it wouldn’t have come this far. Bitcoin remains the largest cryptocurrency, it will always be the first; and it will always be undervalued as it continues its journey to the moon. Its current market capitalisation of $40bn could well double by the end of this year, which is a conservative estimate.

Written by Jon Gulson
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