Bitcoin (available on Coinbase) Cash (BCH) is a network built on the idea that the true purpose of the Bitcoin (available on Coinbase) protocol, is to serve as a platform to deliver a peer-to-peer elecTron (available on Binance)ic medium-of-exchange. BCH is a fork of the original Bitcoin (available on Coinbase) blockchain, with rules designed to allow the core network to expand and scale more easily.
Bitcoin (available on Coinbase) Cash came into existence on block 478558 (August 1st, 2017 about 13:16 UTC) of the Bitcoin (available on Coinbase) core blockchain. Anyone holding any BTC received BCH 1 for 1, with third party exchanges making arrangements for this delivery internally.
As such, BCH had a difficult beginning. Within the first two weeks of trading on exchanges, the price of BCH dropped by approximately 17% from $375.88 to $309.27 (Index) with recipients dumping the new tokens presumably due to a lack of belief in the new fork. The price subsequently recovered, as Bitcoin (available on Coinbase) Cash built an active community of core supporters (the Bitcoin (available on Coinbase) Cash subreddit currently has 35.4K subscribers). At press time BCN is trading at $843, having surged in the past week as the market gears up for a potential sentiment reversal on the back of rumours of incoming Bitcoin (available on Coinbase) ETFs, positive regulatory news and institutional interest.
Trading pairs and exchanges
The most popular trading options for BCH are crypto-to-crypto with the BCH/BTC, BCH/USDT and BCH/ETH pairs accounting for over 75% of total daily trading volume. The next most-traded pair is fiat-to-crypto, with both the USD/BCH and BCH/JPY popular options in their respective jurisdictions. It should be noted that within the USDT/BCH the volume generated by trade mining exchanges like Big.One has been unqualified, because of the questionably high volumes generated using its ‘trade mining’ model.
The BTC/BCH pair is popular across a number of exchanges and there is a relatively even volume spread. HitBTC, which has been in operation since 2013 is the most popular exchange, handling approximately $30 million worth of volume a day. The most popular exchange for USDT/BCH is Okex which handles over $45 million worth of volume, while Bitfinex handles the most USD/BCH volume, approximately $22 million daily.
BCH vs BTC: Solutions to scaling
The legacy Bitcoin (available on Coinbase) blockchain had a maximum block size of 1MB, this has since been extended with SegreGated Witness allowing for blocks as large as 2mb-4mb on the main Bitcoin (available on Coinbase) network.
Adoption of SegWit has been slow, however, and a year after its launch SegWit only accounts for 37% of Bitcoin (available on Coinbase) transactions.
Smaller block sizes limit the number of transactions per second that can occur on a block. While it is technically possible to increase this block size, the issue has been argued about for years within the Bitcoin (available on Coinbase) community. The problems finally came to a head as 2017 progressed and transaction fees on the Bitcoin (available on Coinbase) network began to rise exponentially.
Data from bitinfocharts.com
How to deal with this ‘scaling’ issue was the fundamental reason for the inception of the Bitcoin (available on Coinbase) Cash network. Bitcoin (available on Coinbase) Cash cheerleader Roger Ver, giving the keynote at the Satoshi Vision conference in March 2018, stated that Bitcoin (available on Coinbase)’s retention of the 1Mb/smaller block size would lead to “higher fees, less privacy, slow confirmation and unreliable transactions”, compared to Bitcoin (available on Coinbase) Cash.
On one hand, Bitcoin (available on Coinbase) Cash advocates felt the best way to deal with the issue was to implement a straightforward upgrade and increase the maximum block size, permitting more transactions per block. On the other hand, the view of Bitcoin (available on Coinbase)’s original developers was that the SegWit protocol would be a less abrasive solution to the network’s congestion hassles. Beyond just the technical arguments the disagreement between the BTC and BCH factions is also rooted in deeper ideological differences.
The core of the Bitcoin (available on Coinbase) Cash ideological argument is that the SegWit solution requires the operation of sidechains, like the Lightning Network, in order to be successful. Such a second layer generally involves a trusted third party managing operations off-chain, before verifications occur on-chain. Bitcoin (available on Coinbase) maximalists say this sacrifices decentralization by giving power to the third parties operating within those sidechains. At the same time, critics say there is a conflict of interest at play, with Bitcoin (available on Coinbase) core developers incentivized to retain the smaller block sizes, to allow for projects like the Lightning Network to be developed.
In contrast, Bitcoin (available on Coinbase) Cash’s mission statement is to retain the medium of exchange capabilities within the core layer of a ‘Bitcoin (available on Coinbase)-protocol’ based blockchain. Meaning without having to break the network into ‘protocol’ and ‘settlement’ layers.
Which of either the BTC or BCH scaling solutions, is truer to the original Satoshi Nakamoto vision is a matter of opinion and it is unlikely that we will ever have a conclusive answer to this question.
Recent network performance
On the 15th of May, Bitcoin (available on Coinbase) Cash initiated a significant upgrade to its network increasing its block size from 8mb to 32mb. Also included as part of the network upgrade was an increase to the data default carrier size from 80 to 220 bytes.
This allowed the BCH chain to reintegrate OP_RETURN script code, which was previously used by the original Bitcoin (available on Coinbase) blockchain to mark transactions as invalid. It was thought that even though some developers felt the code feature only generated arbitrary data, it could nonETHeless be used to build meta-protocol innovations to grow the Bitcoin (available on Coinbase) Cash ecosystem.
Since the upgrade, there has been a significant decrease in network transactions fees on the Bitcoin (available on Coinbase) Cash network.
Data from bitinfocharts.com
Interestingly, over the same time period we have also seen a steady decrease in the USD value of transactions on the network, and in the number of addresses carrying out transactions (apart from an isolated spike).
Data from bitinfocharts.com
This indicates that although the network update was able to deliver on its promise of cheaper transactions, it failed to create a buzz of activity, or new users, looking to utilize the upgraded blockchain. Given that the primary goal of Bitcoin (available on Coinbase) Cash is to become viable digital cash, these are key metrics with which to judge it.
3 Month chart- Number of transactions BCH network- Data from coinmetrics.io
While the USD value of transactions has decreased, The number of transactions on the network has increased. A potential explanation for this negative correlation is an increase in microtransactions using BCH, or BCH being used more frequently in developing countries for smaller payments. However, this claim is difficult to back up. The surge in transaction numbers was more likely caused by short term speculators, participating in BCH markets during the sTron (available on Binance)g July market for crypto, rather than any key fundamental factors.
3 month chart- Average Transaction volume BCH- Data from coinmetrics.io
We also see a Mean reversion in trend for Average Transaction volume of BCH, around the 15th of May network upgrade. There is surge in volume pre hardfork, as it is likely that short term speculators believed some sort of passive monetary reward, like free tokens, would be allocated as a result of being a user of the network during the update. Once it became apparent that this would not be the case, usage on the network tapered off.
Future upgrades for the network include; a new double-spend notification protocol, the integration of a block time reducing Proof-of-work algorithm called Bobtail and the implementation of a block propagation technology, Graphene. The core code of Bitcoin (available on Coinbase) Cash also remains healthy, with BCH having the lowest Average Cyclomatic Complexity out of a group including Bitcoin (available on Coinbase), Monero and Ethereum (available on Coinbase).
Technical analysis
The price of BCH has increased ~25% since mid-July in line with overall market gains and changing investor sentiment driven by ETF and institutional investor news.
Exponential Moving Averages (EMA) with Long Term Trends
On the 1D chart, the bullish EMA cross (not shown), or Golden Cross, has not occurred which confirms BCH’s negative linear price trend, with a Pearson’s R Correlation between time and price of 0.67 in 2018 (not shown) and 0.86 since early May (regression channel). Price is currently at the upper 2 standard deviation level (orange arrow). If price can breach and hold above this level, then that could be an inflection point for an eventual retest of the early June resistance level of ~$1174.
Additionally, price bounced off the RSI level of 30 in late June (first black arrow) and the trend appears to still be marching higher (second black arrow), which may provide the needed lift for price to hold breakout of the upper 2 standard deviation level.
If not, then a continuation of the downtrend within the regression channel is likely with a retest of $675 to $625 (dashed lines), which are both key support levels and the mean values within the regression price channel.
Ichimoku Clouds with Relative Strength Indicator (RSI)
The Ichimoku Cloud uses four metrics to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, Lagging Span (Chikou), and Senkou Span (A & B).
The status of the current Cloud metrics on the 1D frame with singled settings (10/30/60/30) for quicker signals is mixed; price is below the Cloud, Cloud is bearish, the TK cross is bullish, and the Lagging Span is beneath the Cloud and touching price.
A traditional long entry would occur with a price break above the Cloud, known as a Kumo breakout, with price holding above the Cloud. From there, the trader would use either the Tenkan, Kijun, or Senkou A as their trailing stop.
BCH is sitting at ~$830 and is currently attempting a Kumo breakout with the key breach level being $944. The RSI is currently at 53 and approaching overbought territory, but has not reached it yet (70 and above is overbought). The RSI metrics may indicate that BCH will have enough buying pressure to enter the Cloud, but not enough to breakout of it. The near support levels are $800, $750, and $700, while longer term support levels are $675 and $625 (dashed lines). Price targets for a successful Kumo breakout are $1000, $1175, and ~$1250.
The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals is bearish; price is below the Cloud, Cloud is bearish, TK cross is bearish, and the Lagging Span is beneath the Cloud but touching price.
BCH is currently experiencing a sTron (available on Binance)g price increase with the hopes of completing a Kumo breakout. However, price will need to break and hold above $1250 (flat Senkou B) for a successful Kumo breakout. Price is currently at ~$830 and the RSI is approaching oversold, which may indicate difficulty ahead for a breakout.
Conclusion
With steam building in the market for a new bull run, BCH may be part of a group major digital assets, led by Bitcoin (available on Coinbase), that performs sTron (available on Binance)gly in the short and medium run. While its history, philosophy, and vocal community may be off putting for some, the blockchain has been able to deliver on its core promises concerning reducing average transaction fees, and work continues on improving the capabilities of the network.
In the longer term, protocol layers built on top of the Bitcoin (available on Coinbase) core network, will likely provide Bitcoin (available on Coinbase) with the same lower transaction fees and higher speeds that Bitcoin (available on Coinbase) Cash advertises itself as offering — potentially eating into its market share. In such a scenario Bitcoin (available on Coinbase) Cash will need to create some factor of added utility, or performance, to continue to differentiate itself from Bitcoin (available on Coinbase) core.
Despite the recent uptick in price and the positive change in overall market sentiment, technicals for BCH are leaning bearish. Both, the prudent short term trader (10/30/60/30) and longer term trader (20/60/120/30) will await a positive TK cross and Kumo breakout above $944 and $1250, respectively, before entering a long position. Both trader’s support levels are $800, $750, and $700, and the bearish scenario support levels are $675 and $625. The (10/30/60/30) trader’s price targets are $1000, $1175, and $1250, while the (20/60/120/30) price targets are $1500 and $1784.
Disclaimer: This analysis has been designed for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.
About the authors
Christopher BrookinsChristopher Brookins is the founder and CEO of Pugilist Ventures, a quantitative investment firm focused on digital assets and blockchain technology. Chris has a deep knowledge and unique perspective on digital assets formed by his polymath experience in equity trading, credit investing, and business development at two West Coast startups (one acquired). He has been involved in the blockchain community since 2014. Follow @chris__brookins
Aditya DasAditya Das is Brave New Coin’s in-house market analyst. Raised in Dubai, UAE, he holds a post-graduate honors degree in Economics from the University of Auckland and a BA in Economics from the University of Sussex. Prior to joining BNC his most recent roles were as a researcher and Economics tutor at the University of Auckland. Follow @Quartlifecrypto