After months of planning to adjust the Bitcoin (BTC) blockchain for more trading capacity and lower trading costs, the effort collapsed.
The SegWit2X fork had been agreed to by developers and coin exchanges twice: once in February and once in May. But the lack of community support and objections to it caused developers to cancel the plan on Nov. 8.
The market impact was immediate. Supporters initially cheered and bid the price to a record $7,900. But momentum then reversed, with Bitcoin losing $1,000 in two days, down to $6,775 by the morning of Nov. 10.
Meanwhile Bitcoin Cash, an earlier fork with the same aim as SegWit2X, enabling more trading volume, found new life, surging 32% to $832.
The Why of the What
The reason Bitcoin Cash surged and Bitcoin fell is that the legacy blockchain’s slow transaction speed increased costs dramatically as trading volumes increased.
In practical terms, the higher cost of using the Bitcoin blockchain meant small transactions no longer made any sense, so traders who are convinced Bitcoin can become a currency flocked to the more scaled version. Between Nov. 9 and Nov. 10, nearly as much trading was done in Bitcoin Cash, $3.1 billion, as in Bitcoin, $3.85 billion.
As one headline writer observed, “Bitcoiners don’t trust elites, even Bitcoin elites.” With the cost of even using the cryptocurrency having risen to $5 per transaction, the cost of some pizzas, people who want to trade with rather than speculate in crypto-currency no longer felt welcome.
ICO or No?
All this meant that an Initial Coin Offering (ICO) based on Bitcoin became worth less than it had been. But this is not the only problem bedeviling the ICO market.
A flaw found in the Parity wallet, which is used by Ethereum, the most popular ICO crypto-currency, caused anywhere from $150-280 million of Etherum to become temporarily unavailable. Vitalik Buterin, the programmer behind the Ethereum software, refused comment in a tweet, leaving the market in limbo.
Companies working off ICO funds were quick to claim everything was normal, but it’s hard to continue business as normal when the “money” you’re based on is suddenly unavailable.
The Securities and Exchange Commission pounced on the Parity problem to condemn ICOs in general, chairman Jay Clayton calling the market opaque and subject to manipulation, and comparing ICOs to penny stocks.
ICO market makers quickly bought stories insisting the market for companies created through ICOs would soon be expanding through new enabling platforms, adding that ICOs have raised more money in 2017 than early-stage venture capital.
What Now?
The crypto-currency market is filled with people who want to drown the government in a bathtub, who deride “fiat currencies” like the U.S. dollar as being open to manipulation.
But without government, there remains government. It’s government of the strong, by the ruthless, rather than government for the people. There are many crooks within the crypto-currency and ICO markets, and many more honest people who might quickly become crooks under pressure, in a market that generates enormous pressure.
At this writing, the crypto-currency market was worth more than $207 billion. That total comes from aggregating the price of 1,272 currencies in 6,442 markets. But a profit isn’t a profit until a trader can spend their gains on goods as opposed to ICOs.
Bitcoin bulls like to talk about how developer Laszlo Hanyecz bought two pizzas in 2010 for 10,000 Bitcoin, which as of Nov. 10, they say, was worth almost $73 million.
But the pizza was real. The Bitcoin are no more real than the market makes them, even less real when eaten with a fork.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. To follow the value of crypto currencies bookmark https://coinmarketcap.com/
