Sunday, November 12, 2017

The Flippening. BTC to BCH Wealth Transfer In Progress

What a wild day we got on 12/11/2017. Bitcoin Cash went as high as .52 BTC and dropped back down to .19 BTC. At the same time BTC dropped below $5500 and recovered to above $6000. What happened ? This movement caught me by surprise. Thought that it would be another 4 days before the action started. In light of this development I think I need to revise my analysis.

1) Price of Bitcoin is about $7800 and it is Total of BTC + BCH

Currently on Coinmarket Cap.     BTC = 6123   BCH = 1731   Total = 7854

What seems to be happening is that value is flowing to BCH.

Take Note :  BTC and BCH share the same Proof Of Work where miners can move from one chain to the other following the most profitable coin. BTC does not have the Emergency Difficulty Adjustment (EDA) coded in so is vulnerable to Chain Death Spiral. If it "dies on the vine" BTC goes to zero.

Large holders are preparing, and today's episode will scare the shits out of them, if they have not hedge their positions. The situation has stabilised but probably only with massive and costly support. Look upon this as the market being propped up while whales shift their portfolios. In the meantime the propaganda machine will be on full blast to restore confidence, and the cyber army will prepare DDOS attacks on exchanges to slow access and trades. They can slow the process but cannot change the outcome. Two coins cannot co-exist on one Proof Of Work chain if one does not have EDA. Core is not likely to encode EDA into BTC with a hard fork anytime soon.

Treat this calm as the passing of the eye of a cyclone. Make your move to protect your financial position. If all your holdings is in BTC you need to hedge by holding some BCH. At this point you still have a 4 to 1 advantage. At the least hold 1: 1 so that you will be wealth neutral whatever happens. I notice that all the Core supporters on Youtube channels are starting to tone their rhetoric and are themselves advising their listeners to hedge their positions.

With the mempool so clog up and block time in the hours you may not be able to move your BTC to an exchange to sell even after paying high priority fees. Take this opportunity to move some BTC to exchanges ahead of time. Do not use low fees options or your transactions will get stuck. Use peer to peer systems and even services like Shapeshift. Coinami and Jaxx wallets have shapeshift support.


2) The Mining Action

a) There is more hash power mining on BCH than on BTC right now.
b) BCH difficulty will retarget in the next day or 2 at the most.
c) BCH hard forks to adjust the EDA so as not to have wild swings in difficulty tomorrow.

After the difficulty adjustment, BCH will still be more profitable to mine. So the majority of hash power will keep mining BCH. The next difficulty adjustment for BCH will smooth out the wild hash rate swings to lock in the miners.

BTC just had their difficulty adjusted and it will need another 1880 blocks for the next difficulty adjustment. With such long block times, BTC may never see another difficulty adjustment, before they are forced to hard fork off the network to another Proof Of Work algorithmn.

Segwit2X is still on. Complete wealth transfer from BTC to BCH
Chain Death Spiral


3) What I think happened
The interesting thing about this whole episode is that the 30% of hashing power, about 3 Exa Hashes, did not come into play. They were still held offline. They were not even mining on the BCH chain. This means that what happened was more of a Fear Of Missing Out ( FOMO ) event.

Many investors and crypto holders are waking up to Bitcoin Cash, and started buying in. Many were moving out of bitcoin and alt coins into Bitcoin Cash which is why the total value of BTC and BCH was almost unchanged throughout the episode. Ultimately this somehow turned into the banking equivalent of a bank run, but unlike banks and stock markets there are no trip mechanism in crypto, and so a feedback loop kicked in and the whole process went berserk.

What ended the panic was the Korean exchange responsible for about 40% of trading volume going offline. This allowed bitcoin support levels to kick in pushing bitcoin price above $6000. At the same time profit taking on BCH drop the price to 0.20 but was still above the price of 0.15 where it started. Seems like the huge demand for BCH came from the Korean exchanges causing this run-up, same as the last one in August. One thing for sure, the Chinese have not gone away. They may be routing their trades through the Korean exchanges as well. Brace for more to come....

This event will not be a one off. We may see two more of these run-ups up to Segwit2X activation. BCH will settle higher and BTC will settle Lower after each episode. When this run-up happened most were caught unprepared and were unable to move their BTC to exchanges. The next episode will see even higher volumes transacted with less gyrations. The DDOS army will be on standby.

4) Too little too late
Do not bother listening to any explanation, excuses, blame or whatever being brandied about, from any side. Bitcoin does not care. What it comes down to is that 2 coins are competing for the same miners to secure their network. BTC does not have the protection of EDA. It is like playing a game of ice hockey where one team is not wearing helmets, because they don't want to stop the game to put their helmets on. It is a foregone conclusion that the longer the game goes on, the team without helmets will be annihilated.