HONG KONG: Bitcoin halted a two-day slump as speculators saw a 29% plunge from its record high as possibly an excessive response to a technology upgrade getting cancelled.
The cryptocurrency was little changed at US$6,593, as evidence emerged that bearish investors started to cover their short positions. The drop earlier was as much as 15% from last Friday, when investors were prompted to switch into rival technologies.
Bitcoin cash, an alternative that split from the original bitcoin in August, has jumped about 19% since last Friday, according to data compiled by Coinmarketcap.com.
“We have seen similar steep falls in bitcoin throughout the year – specifically in June and September – but every time a considerable decline occurs, new investors jump in to experience the new asset class,” Hussein Sayed, chief market strategist at ForexTime Ltd, a currency broker that uses the brand FXTM, wrote in a note yesterday.
While markets had been focusing on bitcoin’s more than 500% surge this year, bitcoin cash was gaining popularity because of its larger block size. That’s a characteristic that makes transactions cheaper and faster than the original.
When a faction of the cryptocurrency community cancelled plans to increase bitcoin’s block size last Wednesday – a move that would have created another offshoot – some supporters of bigger blocks rallied around bitcoin cash.
The resulting volatility has been extreme even by bitcoin’s wild standards and comes amid growing interest in cryptocurrencies among regulators, banks and fund managers. While sceptics have called its rapid advance a bubble, the asset has become too big for many on Wall Street to ignore.
Even after shrinking as much as US$38bil since last Wednesday, bitcoin boasts a market value of about US$110bil.
Supporters of bitcoin’s technology upgrade “are now switching support to bitcoin cash,” said Mike Kayamori, head of Tokyo-based Quoine, the world’s second most-active bitcoin exchange over the past day. “There’s a panic about what’s happening. People shouldn’t panic. Just hold on to both coins until we see how it plays out.”
Bitcoin’s earlier slump had dragged down shares of cryptocurrency-related companies, including Hong Kong-based PC Partner Group Ltd, maker of graphics cards that can be used in the mining of digital coins.
But there were few signs of wider ripple effects. Asian stocks were mixed as investors awaited continuing talks on tax legislation in the United States this week.
The cancellation of last week’s bitcoin upgrade has left users to choose between the two versions of the cryptocurrency.
On one side is the original bitcoin, powered by so-called SegWit technology, which aims to improve its performance by moving unessential data off of its underlying blockchain.
On the other side is bitcoin cash, which allows its blockchain to handle eight times as much data as the original.
Proponents of bitcoin cash believe their approach is simpler and closer to the original goal of bitcoin, which was described primarily as a payment system in its white paper.
Supporters of the original bitcoin say that vision is too limited, and that by improving the blockchain with SegWit technology, bitcoin can become a new digital-asset class that not only supports payments but countless other functions. — Bloomberg