Nov. 15 BCH Hard Fork: Threats and Opportunities
We’re less than 40 hours away from what seems to be the first significant blockchain fork since the original Bitcoin Cash fork last year. It is somewhat ironic that the same reasons that brought the original fork to happen are, at least conceptually wise, the same. And if that is not enough, the competing sides of the fork are fighting on whether to increase the maximum block size on the BCH Blockchain from 32MB to 128MB, when the actual average block size of the network in the last week was a little more than 400KB.
Will The Real Bitcoin Cash Please Stand Up?
While in previous forks, it was rather obvious which chain is going to be the “winner” both in terms of hash rate and financial value, this time the picture isn’t so clear. With the amount of FUD and fake news being distributed on different websites (both sides own leading crypto media, which they use to spread their agenda) and social media, It is tough to see what is going on.
The guys at Coin.dance, who are continually monitoring the BCH blockchain have built a pre-fork updating dataset, to help everyone to understand better what is going on. According to the most updated-to-date data, It appears the even though a bigger part of the industry supports the Bitcoin ABC implementation and a 6x bigger node count, it is the Bitcoin SV implementation that currently being predicted to win the hashrate war, with a perceived hashrate of a minimum of 51% of the current BCH Blockchain mining hash power (and a maximum of 72%). Considering the rumors of Bitmain, that have vested interest in the ABC chain, is supposedly moving in over 120K mining rigs to re-purpose as new BCH hash power, everything is still on the table.
Even though the hash rate is what counts at the end of the day, our friends over at Solume.io helped us understand another aspect of how tight the race is by measuring the social media footprint of both camps. You can see the results below.
Where Is The Market Opportunity?
While some exchanges such as Poloniex and HitBTC who offer another interesting take on the potential “winner,” we believe the most exciting opportunities right now are BCH short-term lending and the highly-probable short-squeeze play on BCH. The amount of shorts peaked the day before yesterday with over 100K contracts equalling $54,704,208 at current prices. The number of short contracts dropped by 20% yesterday, following the announcement that Bitfinex will close short trading until after the fork, which presents a predominant opportunity for a short squeeze to liquidate all players who remained with open short positions.
On the lending side, Bitcoin Cash’s flash return rate hovers around 0.5% while the maximum rate on Bitfinex of 0.75% has already been reached a few times over the last few days. The flash return rate is the average of all fixed-rate positions, of all terms, weighted by their amount. If you compare the interest rate you will get for lending your BCH against the potential return of getting the extra coin from the new fork (according to the pre-fork trading prices and the fact the Traders are betting 2-to-1 on price decline post fork), the math is pretty simple.
Since the race isn’t apparent, and we don’t foresee any of the sides quitting (like the No2X fork that was eventually canceled last year), we would probably see two or even three competing chains emerge (ABC, SV and a possible legacy version for nodes that won’t upgrade).
We recommend consolidating your BCH into one wallet address before November 15, 4PM UTC and making sure not to use the BCH network during the hard-fork(s). Consolidating your BCH into one wallet prior to the fork will make it easier to split your funds up and move funds to wallets and / or exchanges that support alternative coins after the fork takes place. Your BCH wallet might contain multiple inputs with a different private key assigned to each input. Moving those inputs to one address will make it so you only have to extract one private key instead of multiple.
Post fork, Since there is no replay protection on either chain, we suggest creating a new wallet address and moving all your coins into the new wallet address, thus eliminating the chance for a replay attack.
Special Thanks to Raz Peleg from the One Alpha team for assisting with the research and analysis for this post.
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