Word on the Street: Market slides 10% as Bitcoin Cash hardfork bites

The crypto market capitalization has steadied around $186 billion after the mid-week crash erased over $20 billion from the market in a matter of hours. The S&P 500 climbed towards the end of the week back above the important 2,700 level.

Some attribute the sell-off which started on Tuesday to unease over the Bitcoin Cash fork but any definitive reason remains purely speculative. Many exchanges this week halted trading, deposits and withdrawals of Bitcoin Cash as the community awaited to determine the outcome of the fork that split the blockchain into Bitcoin Cash ABC (original) and Bitcoin Cash SV (Craig Wright’s Satoshi’s Vision).

Other theories are the refunding of Bitcoin to Mt Gox customers who subsequently sold it off – usually the movement of old (long-term) coin holdings is indicated by a spike in the Bitcoin days destroyed chart.

Bitcoin trading dominance

In the past 24hrs, trading in Bitcoin continues to be dominated by USDT which accounts for over 57% of overall global trading, down from 62% the same time last week, according to BNC’s global spot price.

Top 5 performers

Worst 5 performers

Trading in stable coins

Of the top 100 coins by market capitalization, stable coins were some of the best performing coins over the past 7 days, which is to be expected as a flight to safety during a crash.

PAX USD and True USD saw huge inflows of volume among the stable coins during the 24 hours of the market crash, according to Brave New Coin’s global-weighted average price. The GWA is the global spot price based on the base volume of trading pairs across global exchanges.

On Wednesday, nearly 90% of trading in USDT was in USD and 80% of USDT/USD was trading on Bitfinex – suggesting a lot of USDT was being redeemed.

Trading volumes in DAI and USDC remains subdued.

The Bitcoin Cash hard fork:

There is a BCH hard fork every 6 months – twice a year – to upgrade the network protocol which is akin to an IOS upgrade but with far more technicality and gravity. Because it’s a base layer protocol upgrade it has implications for anything built on top of it, like hitting a reset button on the TCP/IP layer of the internet. In the case of Bitcoin Cash, the value of assets and transactions depends upon a successful transition. These upgrades could stunt long-term sustainable growth, or compounding network effect, of developers working on the current version of the protocol every time it’s wiped.

If we look back to the first Bitcoin fork in August 1st 2017, when segwit was initiated, block number 478,558 was the last block shared between both the Bitcoin and Bitcoin Cash (ABC) chains. Despite worries about the fork draining hash power from Bitcoin, the original chain didn’t register any change in the first few weeks and rarely ceded hash power to ABC before the two completely diverged from January 2018 onwards.

Upon Bitcoin Cash’s fork on Thursday, ABC lost 36% of its hash power in the first 24 hours.

Hash Wars

The block after the immediate fork, number 478,559, was found on the original Bitcoin chain – it controlled the majority of the hash power – but it was rejected by the Cash nodes despite them not having a block of their own. It was these full ABC nodes that determined the rule change, not necessarily the miners.

At the time of writing Bitcoin Cash ABC was winning the hash war.

Bitcoin correlation watch

The price of Bitcoin and the performance of the S&P 500 year-to-date maintains a weak positive correlation; a weak negative correlation with the US Dollar Index (DXY) and weak negative correlation with gold. Ideally, to justify Bitcoin’s thesis as an alternative digital gold-like asset is a "flippening" of this chart: a negative to weak correlation with stocks and positive correlation with gold.

_The year-to-date Spearman correlations of Bitcoin with the US Dollar Index (blue); the S&P 500 index (grey) and gold (purple). _

Around the world in macro:

North America:

Chipmaker Nvidia’s shares plunged 16% on Thursday after a lackluster forecast, partly attributed to the slowdown in the sales of GPU chips for mining cryptocurrencies since the market crashed. Both the S&P and the Nasdaq are down around 2% this week.

Middle East:

**Binance warns Iranian traders to withdraw crypto amid US trade sanctions. **

The world’s busiest exchange sent an email to Iranian customers saying:

"If you have an account with Binance and fall into that [sanctions] category, please withdraw your assets from Binance as soon as possible"

Bitmex and Bittrex are among the other exchanges to refuse the business and close Iranian customer accounts. It is proving increasingly difficult for exchanges and companies in general to skirt the US sanctions if they want to continue doing business in the US. This may also indicate growing maturity among the exchanges in complying with KYC and AML standards, particularly in the case of Binance and Bitmex which are not US domiciled.

Iran’s national cryptocurrency in pilot stage:

According to a local news source Ibena, Iran is in the pilot stage of launching its own national cryptocurrency, after getting Central Bank approval for use in the country’s banking system.

Research round-up:

Bitcoin Cash hard fork report: A full background on the schism between ‘Satoshi’s vision’ and ‘Satoshi’s original vision’; the op code changes planned for BCH ABC and why this fork has been nastier than previous Bitcoin forks.

Forecasting the future of decentralized prediction markets: Circle’s comprehensive look at Augur, Gnosis and Stox.

The seven deadly paradoxes of cryptocurrency: The befuddling truths behind mining, storage, concentration, valuations, anonymity and valuation.

Wall St believes S&P will peak at 3,056: Bank of America’s latest sentiment report shows fund managers believe value stocks will outperform growth in next 12 months.