The price of bitcoin plummeted 10 percent Tuesday after popular cryptocurrency trading platform Coinbase announced it would be supporting bitcoin rival Bitcoin Cash. The announcement seemed to trigger a flood of cash from bitcoin to Bitcoin Cash, which surged 50 percent overnight.
Bitcoin Cash has only been around for a few months, yet its price has soared and buyers believe it shares all the pros of bitcoin with fewer cons.
The Birth Of Bitcoin Cash
Back in August, the bitcoin blockchain “forked” when supporters could not agree on potential changes to the size of Bitcoin blocks.
Bitcoin has always had 1 MB block sizes, but Bitcoin Cash supporters felt a larger block size could better serve the currency during its scaling process. On Aug. 1, the bitcoin blockchain forked into two different chains. Bitcoin still uses 1 MB blocks, while the newly formed Bitcoin Cash has 8 MB block sizes.
A second proposed fork in the original bitcoin, referred to as Segwit2x, was cancelled earlier this month. The Segwit2x fork would have created a third currency with a 2 MB block size. Since the cancellation of Segwit2x, the price of Bitcoin Cash has skyrocketed.
Bitcoin Cash’s market cap has since exploded to $60.3 billion, making it the third largest cryptocurrency in the world behind only bitcoin ($293 billion) and ethereum ($80.1 billion).
Rocky Start
The Coinbase launch was a huge boon for Bitcoin Cash investors, but it didn’t come without its share of controversy. Coinbase is now investigating whether some of its employees took advantage of inside knowledge of the launch to profit off of the news. The platform also suffered service outages throughout the launch and seemed to experience liquidity issues as well. The price of Bitcoin Cash peaked at $8,500 on Coinbase during the launch, while it was priced at around $3,500 on other exchanges.
Too Little Too Late?
Bitcoin Cash may have gone a long way in closing the gap with bitcoin this week, but it still has a lot of ground to make up to become the dominant global cryptocurrency. Last month, Canaccord Genuity analyst Michael Graham said bitcoin’s lead may simply be too large to overcome at this point.
“While some have gone so far as to proclaim that Bitcoin Cash will ultimately overtake bitcoin as 'the bitcoin,' the overall consensus appears to be that BTC is unlikely to give up its spot as the No. 1 cryptoasset (BTC makes up 56 percent of the combined market cap of all cryptos, compared to just 8 percent for BCH) anytime soon,” Graham said earlier this month.
Bitcoin Investment Trust GBTC investors were not deterred by the Bitcoin Cash threat Wednesday. The GBTC ETF traded down by 1 percent and remains up by 2,380 percent year-to-date.
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