Sunday, November 5, 2017

Segwit2X - A Billion Dollar Windfall Event And Opportunity Bitcoin Miners Control

This is my final post before the coming Segwit hard fork. Note that I do not have access to miners, developers or whales. These observations are my own and they are deduced from the available public information accessible to everyone. Do not take this as investment advise. If it helps you  .... You're Welcome.

A Once In A Lifetime Golden Opportunity For Bitcoin Miners

Segwit2X futures are trading at 0.15 BTC. If you are a miner supporting Segwit2X, can you pass up on this opportunity to make a quick, clean, and legal, profit of 5X on your investment, in a situation where the outcome of the event is in your (industry) control?

If it all works out for the miners, and they reap this huge windfall, you cannot criticise or sue them for being deceitful or for insider trading because they have actually signed an agreement publicly stating that it was exactly what they are going to do. They can't be blamed if you did not believe them.

As a miner they are in business to make money. We even assumed that this profit motive drives them to mine the most profitable coin. Mining margins after costs are at best small, and it may take years to recover their investments. Why would they not take advantage of this golden opportunity? A million dollars "invested" will nett them at least 5 million, after BT2 is declared to be the new Bitcoin.

Major companies like Blockchain.info, Bitpay, Xapo and Coinbase have publicly stated that they will recognise the chain with the most accumulated hash power (hashrate x blocks) as BTC. This calculation will not take into account the price of BT1 or BT2. This means that if a majority of them (miners) are supporting Segwit2X then Segwit2X will become BTC. Note that it needs just a majority and not 80 or 90%.

Opaque messages from exchanges recognising Segwit1X as BTC. Eg. HitBtc

1) "On the day Segwit is activated B2X withdrawal and deposits enabled". All it means is that they will trade B2X, and if B2X become BTC so be it, if not they will trade it as a token. It means nothing really. Just stating the obvious.

2) "We may temporarily suspend BTC deposits and withdrawal ...... once we are sure it is safe, we will restore full functionality"

It is actually the same policy as Coinbase. They did not insist that if B2X has more accumulated hashrate, they will still treat B1X as BTC, because they can't. No customer will accept that trade. So it is clear that even if exchanges say that they prefer Segwit1X to be BTC they still have to wait till the situation resolves. It is just a PR stunt or it may be construed to confuse as they may also be keen to jump in on this "golden opportunity".

Trading volumes were light in the begining but now with 10 days to go, the 24 hour volume have reached 5700 and increasing. It is conceivable that we could have 100,000 or more contracts outstanding at the fork. This could easily become the record single Billion dollar wealth transfer event in the history of Bitcoin.

So why would anybody take the opposing view if they stand to lose that much money?

Perhaps they are committed (Blockstream) and have to protect their position. Perhaps they are putting up their money to protect their principles (misguided), or maybe they just can't see the wood for the trees. The truth is - They are not in control. The miners are. We have to at least expect that human beings will act in their own self interest.

Group 1 losers : Bitcoiners, and new bitcoin converts who believe that they will be getting Segwit2X coins as dividends which they can quickly sell for a profit. (ALA Bitcoin Cash). See my last post on No Segwit2X Dividends. No dividends but they will still have their BTC.

Group 2 losers : Investors who purchase Segwit1X futures thinking that they are getting BTC at a discount. 100% loss if Segwit2X wins as the Segwit1X chain is unlikely to survive.

Group 3 losers : Those who believe that miners will mine the most profitable coin and so factor in the future price of BT1 and BT2, but as stated above, price is not a factor in calculating accumulated difficulty. If you really think about it, the most profitable option for miners is the windfall scenario.

If Miners End Up Supporting Segwit1X

In the unlikely event that miners end up supporting Segwit1X, they will have to answer to why they reneged on their word and agreement. There could be class action legal suits (against NYA signatories) flying about from the people who lost money trusting them. Why would they sully their reputation and risk the wrath of these investors. Sticking to their word and agreement is the most profitable and safest course of action.

The Battle For Bitcoin Cash To Become Bitcoin Is Not over.

Bitcoin Cash is not an Alt Coin. It is still in the running together with Segwit1X and Segwit2X to be the real Bitcoin. They all have the genesis block and compete for the same hash power. The tussle between Bitcoin Cash and Segwit since the last fork is still continuing. It has now morph into a tussle between Bitcoin Cash, Segwit1X and Segwit2X. In this coming fork Bitcoin Cash is not in the running for the title of BTC because it is very far behind both Segwit coins in terms of accumulated hash power. What can happen to Segwit1X if it becomes the minority chain is covered in my previous post. However, in the long run only one coin can survive on the Bitcoin proof of work. This has implications if you are a fund manager.