The Bitcoin Split Won’t Inherently Change the Currency

Bitcoin is the monetary scheme that refuses to go away. In the past, we’ve seen the instability and inherent flaws in the currency. But right now we’re seeing something interesting. The value of Bitcoin has increased 15% since last Friday reaching $3,230 per token. The Bitcoin community is celebrating this increase in the wake of the terrible crash just a week or so ago. The currency decreased in value by 30%, or $1,862.

But there’s something new going on.

“Last week, bitcoin divided into two currencies. The solution dubbed SegWit2x has been debated for a long while in the bitcoin community, as developers wanted to retain the original blockchain that protects the cryptocurrency from hackers, while miners preferred to double the size of data blocks to make the network faster.

“Bitcoin Cash is trading at around $270 per token with the market capitalization of the newcomer floating near $4.4 billion, according to Coin Market Cap.”

News reports show that there has been a split in the Bitcoin currency. Some of its users have gotten together to break it up and form their own currency called Bitcoin Cash. Essentially there has been a struggle between the holders of Bitcoin and the developers. What is interesting here is the comments by Bitcoin advocates that seem rather detached from the economic reality.

Despite this new development which demonstrates an ability to manipulate the crypto-currency, a new price bubble is forming. Bitcoin is touted as superior, and not a “scam” because it’s not a fiat currency. Meaning, it’s not a currency that is backed by the faith and trust of the US government as a mandatory form of payment. The problem with this claim is that it is a fiat currency. There is no inherent value to Bitcoin. Its price is whatever people think it is. There is literally nothing backing the price of bitcoin. At least a government issued fiat dollar has the power of the government behind it. This new Bitcoin Cash is no different.

Bitcoin is an asset bubble like any other, except that it has no means of being regulated. It also has no physical value behind it like a mortgage backed security. Its price is determined entirely by the actual market transactions of the commodity. Yet, its users are under the impression that it has some kind of intrinsic value. As we’ve seen, big Bitcoin players have manipulated the price of the currency by making large specifically targeted trades. Yet its advocates claim that Bitcoin is superior because it can’t be “manipulated”. In actuality what they’re railing against is the regulation that keeps government issued fiat stable.

Bitcoin will continue to create bubbles, suddenly deflate, and begin again. This new Bitcoin Cash demonstrates nothing new with regards to crypto-currency. Perhaps it will be easier to mine.

Advertisements