The Ominous Bitcoin Tumble and Bitcoin Cash Rally

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Updated: Dec 20, 2017, 11:26 UTC

Bitcoin is under pressure as Bitcoin Cash and Bitcoin Gold look to get out of big brother's shadows.

Bitcoin has hit the news wires once more this morning, though for the wrong reasons, with Bitcoin tumbling to an intraday low of $15,800 and even lower on some exchanges, before recovering to $16,740 at the time of writing. The day’s 5.42% fall to $16,740 may not sound like much in percentage terms, with the cryptocurrencies frequently moving by such margins on a daily basis. The ominous decline to sub-$16,000 levels could be a warning sign of worse things to come, however.

Within the more mature asset classes, we traditionally see larger price fluctuations as a rally begins to run out of steam and Bitcoin has certainly been choppy in recent days, with price fluctuations in the thousands between which there has been some lengthy sideways movements.

The downward pressure on Bitcoin can be attributed to a number of factors.

We’ve heard plenty of chatter in the cryptocurrency community of leading players in the crypto markets pulling out of Bitcoin in favour of Bitcoin Cash. The reason for the shift being linked to Bitcoin’s blockchain technology and issues faced on the Bitcoin network including transaction speeds and stability.

While many had hoped that the launch of Bitcoin futures by the Cboe and CME exchanges would spur a rally to beyond $20,000, the opposite looks to have occurred. Bad press and a more efficient way for the Bitcoin bears to take short positions against Bitcoin have led to Bitcoin’s futures contracts for January, February and March expiry all taking a dive, with the March CME contract down $1,415 this morning to $17,000. January’s contract is not doing too much better, down $885 to $17,300 at the time of writing.

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Some may take comfort in the fact that the contract values remain above Bitcoin’s current price, but the very fact that the Bitcoin bears are beginning to influence and in a significant way, is an ominous sign for Bitcoin, with investors clearly taking cues from the futures market.

On the CME Bitcoin Futures Exchange, January’s contract hit an intraday low of $15,835 before recovering to $17,300 at the time of the article.

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Is this the beginning of the end for Bitcoin and those hoping for Bitcoin to make a move towards the more exuberant forecasts that have been made of late?

It’s too early to call, but the choppiness at the top end is one to be cautious with and when considering the fact that there are alternatives to Bitcoin, there’s no reason for investors to hold on to Bitcoin as the risks of a greater fall rises by the hour.

Bitcoin Cash may have been in the shadows of big brother since the August hard fork, but the media frenzy appears to have changed tune, with Bitcoin Cash now beginning to grab the headlines. The cryptomarket’s larger exchanges, including Coinbase, have begun to offer Bitcoin Cash on their exchanges in recent days and volumes have surged. Bitcoin Cash’s price has also jumped, with Bitcoin Cash up 24.56% $3,325.2 for the day, off slightly from an intraday high of $3,676.

Bitcoin Gold has also taken advantage of Bitcoin’s woes, rising by 19.19% to $377.73 at the time of writing.

When considering the fact that the other major cryptocurrencies are sitting in the red through the early part of the day, Bitcoin Cash and Bitcoin Gold’s intraday gains are all the more poignant.

It’s certainly going to be an interesting few days ahead and if Bitcoin’s lows continue to go lower, we could see Bitcoin’s offshoots take over. Following the inclusion of Bitcoin Cash on the Coinbase exchange, trading had to be suspended, with the exchange reporting that the last quoted price had hit a high of $9,500. That’s more than $6,000 above current levels and reflective of the surge in demand and what may well lie ahead for Bitcoin Cash and the faster transaction speeds offered.

There’s a long way to go for Bitcoin Cash, with businesses needing to recognise Bitcoin Cash as an alternative payment system. Hashrates will also need to be on the rise, with miners needing to verify transactions.

Ultimately, it’s reasonable to assume that both of these are likely to happen, particularly if Bitcoin Cash continues to take the markets by storm and the Bitcoin Cash network remains significantly more stable, with faster transaction speeds.

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About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.