Bitcoin Cash spikes ahead of the controversial November fork

Bitcoin Cash rallied past 45% since November 1, as Coinbase and Binance, two leading cryptocurrency exchanges, announced their support to the upcoming Bitcoin Cash fork, due on November 15th.

On its website, Coinbase announced that ‘in the unlikely event that multiple viable chains persist after the fork, Coinbase will ensure that customers have access to their funds on each chain.’

Why is this important?

As a hard fork happens, the holders of the forked cryptocurrency are eligible to get both coins. But if the crypto holdings are deposited on an exchange, then the exchange has to adopt both protocols to allow its users to migrate to both coins.

Holders could of course manage their cryptocurrency holdings independently from an exchange, by keeping them on a separate wallet, and make sure that they could claim both coins after a hard fork.

Yet, support from leading cryptocurrency exchanges is an important step to facilitate the adoption of a new coin by traders, and removes a part of the barriers and uncertainties surrounding the hard forks.

This being said, the event risk still prevails before the BCH’s November fork.

Moving forward, the ongoing uncertainties and the increased price volatility could weigh on BCH/USDT, which has surged past the 600 mark, and encourage a downside correction toward the major 38.2% retracement on the November rally ($554). This level should distinguish between the development of a stronger positive trend and a short-term bearish consolidation.

Why is the November fork so important?

Bitcoin Cash has been under a decent selling pressure over the past months. A part of the price unwind was due to the industry-wide negative momentum, but a part of it was driven by the controversies regarding Bitcoin Cash’s planned November hard fork.

In fact, Bitcoin Cash forks its chain twice a year to integrate the protocol updates. The idea is to improve the speed, scalability and security issues of the network and keep Bitcoin Cash competitive among its competitors.

A hard fork is a technology update. It doesn’t necessarily mean that a new coin will be created. But because the upgrade is irreversible, the majority of miners should agree to migrate to the new protocol for the chain to remain intact. If however this is not the case, then the hard fork could result in two separate coins.

Since the latest BCH forks have been adopted by most miners, the upgrades have been flawless and the Bitcoin Cash’s blockchain remained one.

However, the upcoming fork has been a headache for miners and divided the BCH community into separate clans. And this is what makes the November fork so critical for Bitcoin Cash. If developers fail to find a consensus, then Bitcoin Cash, which has resulted from a Bitcoin hard fork, could itself undergo a divisive hard fork.

Is a new coin on its way?

The tensions regarding the BCH’s November hard fork mainly rose between Bitcoin ABC and nChain, which are well-known BCH developer communities responsible for the full node implementation of the Bitcoin Cash protocol.

Bitcoin ABC’s developer team is preparing for the November software update, including several controversial features, such as canonical transaction ordering and the activation of two new operation codes (OP_CHECKDATASIG and OP_CHECKDATASIGVERIFY).

But, nChain opposes to these changes in an effort to “fully restore the original Bitcoin protocol” via a full node implantation called Bitcoin SV – Bitcoin Satoshi’s Version. nChain is looking to implement different changes instead,

• to restore more original Satoshi operation codes (OP_MUL, OP_LSHIFT, OP_RSHIFT, OP_INVERT)

•  to remove the limit of 201 opcodes per script

• and to quadruple the maximum block size from the actual 32MB to 128MB.

According to nChain, ‘the future of Bitcoin is big blocks, big business, and big growth’ and that ‘Bitcoin SV is an important step toward that big future by advancing the professionalization of Bitcoin.’  

Long story short, there is a risk that Bitcoin ABC’s protocol changes would no longer be compatible with nChain’s future development plan. This could result in two incompatible chains following the November fork. Hence, a new coin could see the daylight.

For now, we could not rule out the possibility of a new cryptocurrency emerging from the Bitcoin Cash hard fork. Yet in all cases, traders should be ready for high price volatility and manage the risk of their positions before the November 15 fork.