In the first week of August, CNBC’s Brian Kelly outlined three factors for the recent surge in the bitcoin price: completion of the August 1 Bitcoin Cash (BCH) hard fork, elimination of uncertainty surrounding scaling, and a rapid increase in demand from institutional investors.
The successful execution of the BCH hard fork established an important precedent for the bitcoin community and network. Contradicting the analysis of most forecasters including Vinny Lingham, the bitcoin price demonstrated a strong rally after the execution of the BCH hard fork, mainly because it had minimal impact on the main bitcoin network. Prior to and after the fork, the bitcoin network operated normally, processing transactions without any sort of security issues.
Elimination of the uncertainty of a future hard fork was also a driving factor propelling the bitcoin price because it built confidence around investment and the market. Once traders started to express confidence in bitcoin’s ability to scale, the bitcoin price began to surge. During last week’s strong rally, bitcoin established a new all-time high at US$4,510.
However, over the past few days, the bitcoin price dipped below the US$4,000 mark, dropping by over US$500. It has since recovered to US$4,060, and various momentum indicators including the moving average convergence divergence (MACD) demonstrate that bitcoin will likely sustain its current upward momentum throughout the upcoming days.
What Led to the Short-Term Decrease in Bitcoin’s Price?
Earlier this week, BitPay, arguably the largest payment processor for merchants, received harsh criticism from the bitcoin community for misleading users and merchants in connection with the upcoming SegWit2x hard fork. The Merkle previously reported that some businesses and miners have been preparing for the SegWit2x hard fork scheduled to take place in November.
Nicolas Dorier of NBitcoin went as far as to provide a BitPay API without SegWit2x support — or as Dorier explained, without “BitPay” — to current merchants on the BitPay platform.
“I will provide a Bitpay compatible API for those who want to keep Bitcoin payment deployed for using Bitpay but without the bitpay part,” said Dorier.
Led by Jean-Pierre Rupp and former Bitcoin Core developers including Jeff Garzik, the consortium of 58 businesses and mining pools established by Digital Currency Group is planning a hard fork in November to create a separate SegWit2x chain. If the proposal is accepted and the consortium decides to fork bitcoin, it will lead to another chain split, leading to the existence of two bitcoin-originated altcoins: BCH and the SegWit2x coin.
The announcement of Rupp read:
“During the month of November 2017, approximately 90 days after the activation of Segregated Witnesses in the Bitcoin blockchain, a block between 1 MB and 2 MB in size will be generated by Bitcoin miners in a move to increase network capacity. At this point it is expected that more than 90 percent of the computational capacity that secures the Bitcoin network will carry on mining on top of this large block.”
Although Garzik emphasized that SegWit2x will be bitcoin and the majority-supported chain, many experts like Blockstream executive Samson Mow claimed that most miners and businesses within the SegWit2x consortium have dropped their support toward the hard fork.
Miners are starting to back out of #SegWIt2x. It has very little support now & no businesses are actually taking it seriously. #fizzle https://t.co/xdYY9TFLos
— Samson Mow (@Excellion) August 19, 2017
In November, around the time of the activation of the SegWit2x hard fork — if it in fact occurs — the price of bitcoin will likely suffer a minor correction, as it did prior to the BCH hard fork. Currently, bitcoin is recovering from the initial announcement of the SegWit2x team and the market is rebuilding confidence.