Confusion and Euphoria As Bitcoin Cash Tops $30 Billion

"BITCOIN CASH IS BITCOIN NOW."

Issued by Li Ang, head of China-based bitcoin mining outfit Canoe Pool, the proclamation may not be distinguishable from typical cryptocurrency banter. However, the difference this time around is the context.

No idle statement, Ang's comment comes amid what can only be characterized as one of the biggest migrations of capital yet seen in the nascent asset class. Billions are on the move in the crypto markets, and it's plainly observable where the funds are headed.

After hitting a record high above $800 on Friday, the price of bitcoin cash, the alternative cryptocurrency forked from the bitcoin blockchain in August, has doubled within 24 hours, hitting a high of $1,856 according to figures from data provider CoinMarketCap. At that price, bitcoin cash is now valued at more than $30 billion, passing ethereum for second-place standing in the market.

The move follows the sudden decision this week by a group of businesses and mining pools to suspend an effort to change the rules of the bitcoin software. Called Segwit2x, or simply "2x" by some, the effort would have increased bitcoin's block size – one way by which its transaction capacity can be measured.

But while bitcoin's developers and technologists lauded the suspension, miners and entrepreneurs lamented what they described to CoinDesk as a decision that would inspire others to migrate to blockchains more accommodating to their ideas and ideals. And if it was unclear at the time which alternatives would win favor, bitcoin cash is already proving the primary beneficiary.

Early and active in migrating support appears to be bitcoin's miners.

According to data from Fork.lol, at roughly 4:30 UTC on Sunday the total amount of mining power backing the bitcoin cash blockchain surpassed that of the bitcoin blockchain.

When asked about the move Jiang Zhuoer, founder of bitcoin mining pool BTC.Top, said simply that "2x fans" are moving both funds and mining hardware to bitcoin cash.

"BTC is going to die," Zhuoer said. Hapio Yang, CEO of mining pool operator ViaBTC, responded similarly, indicating he believes that businesses and investors are now migrating funds to bitcoin cash.

"I think more and more bitcoin holders are starting to understand what is the real bitcoin," he said via WeChat.

Doom sellers

Indeed, spurred by a sudden change in market outlook, bitcoin cash supporters appeared emboldened in their remarks. No doubt part of the equation is the soaring valuation of the protocol, which after debuting at $4 billion in August, hasn't exactly solve some of its more pressing open questions.

Still, Jake Smith, general manager of cryptocurrency web portal Bitcoin.com, owned by investor and block size increase advocate Roger Ver, doubled down on the idea that the new investment dollars represent more than a speculative migration in the market soon to pass.

Smith noted that with the price boost bitcoin cash's value proposition can only now be strengthened by what he categorized as its ultimate performance increases over the bitcoin blockchain.

"I think a positive feedback loop has been created. This is waking people up to the shaky foundations BTC is built on," he said.

Smith went so far as to describe the typical doomsday situation predicted by those supporting larger blocks – that bitcoin's transaction backlog will continue to grow, its transactions will become more expensive, and that these two factors will decrease user experience and force users to migrate.

Other supporters like bitcoin cash developer Juan Garavaglia chalked up the day's price movements to "better planning" by those using the protocol.

"Bitcoin Core is unable to execute, has a poor roadmap [and is] disconnected with market needs," Garavaglia said. "We can execute, we have smooth coordination with key market actors and we address market needs."

Skeptical voices

If those boasts sound familiar, so too was the rhetoric from those who were more apt to read the bitcoin cash price movements with more incredulity.

Jack Liao, the CEO of Hong Kong-based mining firm LightningASIC, for instance, sought to frame the idea that the bitcoin cash price increase represented any real uptick in interest in the project as "total bullshit."

One of the leaders behind the bitcoin gold cryptocurrency, set to launch tomorrow, Liao has been a noted critic of bitcoin's mining operators, in particular, Bitmain – one of the industry's largest sellers of specialized mining chips and the operator of several mining pools.

For those following the scaling debate, Bitmain's conduct has been one of the larger contentious narrative points, and Liao (like others) believes the explosion seen in the bitcoin cash market value is nothing more than an orchestrated bid by the firm (and its supporters) to prop up the market.

"Many, many investors just see the change in hash rate," he said. "But they cannot support such a big bitcoin cash price."

Beijing-based over-the-counter trader Zhao Dong reported a similar sentiment in some circles, crediting the price to manipulation by miners and investors who have supported Segwit2x and bitcoin cash in the past. Bitmain and Ver were both signatories of the agreement that sparked the 2x software.

"They have money, they have hash power, they have everything need to pump the bitcoin cash price," he said.

Indeed, one of the more interesting theories at the moment revolves around an unconfirmed PasteBin conversation that seems to foretell yesterday's market move (though this may say more about current paranoia in the industry at large).

Swing states

Still, that's not to say the reaction was broken along partisan lines.

Willy Woo, recently named one of CoinDesk's Top 5 Token Analysts of 2017, sees the price move as perhaps one to watch. In contrast to other alternative cryptocurrencies that he said may lack value propositions, he went so far as to color bitcoin cash as a more nuanced option.

"It's backed by a lot of money from China controlling its price and supporting its network. If you buy bitcoin cash, you are betting that China wants it to dominate. That's a strategic and geopolitical bet," he told CoinDesk.

Bobby Lee, CEO of mining pool and exchange operator BTCC, had a similar reaction. Long a business that supported the Segwit2x proposal to upgrade the blockchain, he reads the price boost in bitcoin cash as an obvious side effect of the decision to block the upgrade.

While he acknowledged that it's yet to be seen whether this weekend's movements amount to anything more than a quick speculative fervor, he still hinted the situation remains one he'll be watching and observing.

Of particular concern for Lee, and others, is the decline in bitcoin's total mining power.

Lee went so far as to suggest that any continuing decline in this metric could cut into an attribute that has traditionally been one of the cryptocurrency's defining characteristics.

Lee concluded:

"If BTC's hash power continues to fall, then I do think BTC has long-term trouble."

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BTCC.

Bitcoin close-up image via Shutterstock