PayPal insight: the possible follow-up effects of BCH secondary fork

Original title: "PayPal Insights: The possible follow-up effects of the second fork of BCH"

Original source: PayPal Finance

Since the BCH hard fork in 2018, the news that BCH will be forked again has once again aroused heated discussions in the market. The second fork is expected to start on November 15, 2020. What is the future direction of the BCH market?

In this issue of PayPal Insights, PayPal Financial Researcher’s The analysis article pointed out that in addition to considering changes in liquidity and basis, and analyzing the follow-up effects caused by the second fork of BCH, it is also necessary to refer to the changes in the ecosystem on the chain after the first fork to predict the risks involved.

Summary

- The reason for this fork is also due to differences in community opinions, mainly Behind the battle of algorithms is ultimately a battle of interests.

- The effect of hoarding coins begins with a fork, and the fork is equivalent to distributing candy at the beginning, so BCH futures may appear certain The premium will be negative at this time. After the fork is complete, the price may fall back.

- The factors that determine the unilateral price of BCH are limited, and in the end it still depends on its parent currency BTC. Judging from the current situation, the possibility of ushering in a BTC bull market is gradually increasing.

- Liquidity will support both ends of the fork. The emergence of new coins is likely to cause the price to rise first and then fall. In the short term, the liquidity will improve and the transaction activity will be high.

- Facing the possible hard fork, it may be a new challenge for the exchange.

1. BCH Fork Reluctance

BCH is the fork chain after the hard fork of BTC on August 1, 2017. As the only development team of BTC, Bitcoin Core cannot accept major modifications to BTC, which led to a series of later forks.

The first fork of BCH occurred in 2018.

At that time, the BCH community failed to reach an agreement on updating the code and split into two camps, BCH ABC and BCH SV. On November 16, 2018, a hard fork occurred in BCH, and two development teams conducted a duel of computing power. On November 23, BSV gave up the naming rights, and BCH forked into the original BCH chain and the BSV chain. The leader of the BSV community in this fork is "Ao Ben Satoshi" who has caused great controversy.

The differences in governance philosophy between the two parties have also affected investors' propensity to hold, After the competition for computing power, the price trends of the two sides staggered all the way. The market value of BCH is higher than that of BSV most of the time, but the gap has become smaller and smaller.

Data source: CoinMarketCap

The reason for this fork is also because of the community The differences of opinion are mainly due to the algorithm dispute. However, this time the contestants have been replaced by two teams, Bitcoin ABC (BCHA) and BCHN. Currently, the three mainstream teams promoting the development of BCH are [Bitcoin ABC], [Bitcoin cash note], and Bitcoin Unlimited. Among them, the ABC team contributed a lot. The mining nodes they created attracted a large number of fans, and by providing the latest technical support, they paved the way for the possible collapse of BCH futures prices, delisting of exchanges, and loss of liquidity.

What really caused this fork dispute was an announcement issued by the ABC development team.

In the announcement, the ABC team asked miners to share 8% of their income with their technical team. According to its announcement, developers spend 90% of their time working on developing safer codes. Before the second fork, it is only natural to change the core consensus principles and strive for more returns.

BCH November upgrade guide issued by Bitcoin ABC

 Some miners understand and agree with the ABC team's approach, while others express dissatisfaction with the ABC team's more benefits, and think that the hard fork may bring bad effects. Some have affected Strong BCH community members expressed concerns about the BCH ecological development after the second fork and the community's over-reliance on the ABC team.

Different opinions in the community lead to a battle of computing power, and behind it is a battle of interests. This is a struggle between two forces, and then evolves into a later stage Hard fork.

Second, how to solve the basis difference after the hoarding effect?

The benefit of the hard fork is to get the reward coin candy. The same as the fork effect of other cryptocurrencies, the community did not seem very happy when BTC forked out of BCH before. However, some people still gave hope to this BCH fork, because Like BTC, it will bring a hoarding effect.

The hoarding effect begins with a fork, and the fork is equivalent to distributing candy at the beginning, so there may be a certain premium in BCH futures, which will be a negative basis at this time. After the fork is completed, the price may fall.

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BCH basis

For now, Most people are choosing hedging and short positions. As shown in the basis chart of BCH above, users hold the spot, causing the premium to be negative from October 15th, and may continue to decline until November 15th before the fork. Because of the reduction of sweets and the limited factors determining the unilateral price of BCH, it still depends on its parent currency BTC in the end. Judging from the current situation, the possibility of ushering in a BTC bull market is gradually increasing.

3. Price and computing power are diluted

The essence of miners mining is the trend of interests.

Due to the same algorithm, with the reduction of BCH mining rewards Half, a large number of miners will turn to BTC and BSV. Although the miners who are optimistic about BCH will still trade BCH by mining BTC, because the 18-year fork has not been protected by replay, differences still exist, and the consensus reached by the community is threatened.

Source: Bitinfo Charts

Since the halving of BCH, the income has decreased, resulting in a short-term shortage of computing power. Afterwards, the computing power has gradually increased .If there is a strong computing power cut in, the original computing power of BCH will be diluted, and BCH will still develop towards weak centralization.

Source: Coin Dance

Many investors It was after the first fork that they lost confidence in BCH. They believed that the upper limit of the total amount of BCH had reached a bottleneck, and the deepening contradictions in the community led to a fork, destroying the original rules. And market fluctuations are often affected by giant whales. They will regularly raise the price in exchange for USD or other currencies. Some investors also believe that the fork of BCH is not a fork in the true sense, community conflicts have not been alleviated, and the conflict of interests will lead to future off-chain continuation Forks. BCH trades at a discount because it has lost its audience, and like a non-convertible anchor currency, the perceived value continues to decline.

Fourth, Liquidity and other risks

Liquidity will provide support for both ends of the fork. That is to say, traders hold BCH In terms of liquidity, you will get the same amount and equivalent value of new currency (1:1 ratio).The emergence of new currency is likely to cause the price to rise first and then fall. In the short term Liquidity is getting better and trading activity is high.However, in extreme cases, price changes will reduce transactions, BCH futures prices will collapse and BCH will be delisted, which will level liquidity.

Facing the possible hard fork, it may be a new challenge for the exchange.< /p>

Bitcoin ABC lead developer Amori Seshe said: ABC customers will Support the BCH chain. Coinbase principles stipulate that 8% of mined BCH will be directed to Bitcoin ABC for team development financing. According to Seshe, new development capabilities will be provided after financing, enabling BCH to compete with Bitcoin and Ethereum.< /p>

August 2020, Jiang Zhuo, founder of Litecoin mining pool Er posted on Weibo: "Support goodwill forks (no grabbing names + replay protection), and give everyone candy. The most important thing in a bull market is to compete for eyeballs, traffic, funds, and users. Support big news. "

However, the party that does not support the Financing Plan (IFP) , may switch from ABC to BCHN to support real BCH. Since the ABC client will follow the new consensus rules (Coinbase principles), legacy block supporters may cause a network split. As for the two blocks created, it is unknown which chain will inherit the name of BCH, which may threaten the stability of the two coins and cause the loss of user assets.

Whether the expected fork of BCH will bring In a bear market, it will still follow the long-term trend of BTC to a bull market. The expectation of bifurcation is good for the secondary market, and there will be people who are eager to get candy BCHN to buy.

But it is difficult to determine whether the miners will return? Enough candy? Will the price rise first and then fall? Will endless hard forks continue? let us wait and see.

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