We hope you and your portfolios have survived the run of the recent days. Our trading systems at Osiris Finance urged us not to trade during this period so we managed to preserve our capital. We are expecting to resume the regular posting schedule with forecasts and news digests on Monday, November 19th.
And now for something completely different.
Osiris Finance presents an analysis of a Bitcoin Cash hard fork that happened on November 15th at 4:40 UTC with first blocks mined on rival chains ( Bitcoin and Bitcoin SV) soon after 6:00 UTC (Source: https://blockchair.com/bitcoin-cash/bloc...). The blockchain community is somewhat divided in terms of support of two rival chains. Osiris Finance personally sees both significant merits and shortcomings in both technological reinterpretations of Bitcoin Cash protocol, however the Osiris team generally supports the Bitcoin project as the leading enthusiasts of Bitcoin seem more competent and level-headed (nevertheless, we are deeply disappointed that both Roger and Craig Wright have so much influence over respective blockchain projects that are meant to be decentralised and independent by definition). Many exchanges, including Bitfinex and Poloniex, have started trading Bitcoin and Bitcoin SV IOUs shortly before the fork (Source: https://www.coindesk.com/major-exchanges...). Therefore, it is extremely interesting how such aggravating rivalry manifests itself in coin prices and whether it offers any profit opportunity in the future.
Prior to the hard fork, there were a number of concerns surrounding the ABC-SV rivalry. First, as Satoshi’s Vision implementation has been focused on increasing the block limit, the market would react to the relative size of blocks mined on the SV chain (Source: https://coincodex.com/article/2579/whats...). Second, as there were speculations that SV team might launch a 51% attack, the dynamics of relative hashrates of the two networks could trigger a price reaction (Source: https://ethereumworldnews.com/bitcoin-ca...). Finally, and arguably most importantly, as analysts warned SV chain could mine empty blocks on the chain and thus disrupt the functioning of the network, the market would be very responsive to any empty block appearing in the chain. (Source: https://www.coinspeaker.com/bitcoin-cash...)
Going into the fork, the SV chain controlled over 74% of the hash rate (Source: https://cash.coin.dance/). Probably to level the playing field, Roger has announced that the Bitcoin mining pool Bitcoin .com would switch some of its computational powers to mine the chain instead (Source: https://www.chepicap.com/en/news/5208/bi...). It is arguably working, as now is leaping ahead in terms of hash rate and controls 64% and that has been relatively stable recently (Source: https://cash.coin.dance/).
The analysis of Bitcoin ( BAB ) price responses to major post-fork events can be seen on the chart. Right after the fork, the market responded strongly to which chain mines the first block. First two blocks were mined by Bitcoin .com on the chain at 18:02 and 18:05, which caused the BAB price to jump upwards from 280 USD to 300 USD. As SV chain has struggled for a reasonably long time to mine blocks, BAB has skyrocketed and peaked around 360 USD at 18:20 UCT. Later on, a variety of concerns surrounding the chain have driven the price down. First, the blocks were finally mined on the SV chain and their size was impressively high, especially relative to those on the chain, letting the market believe the technological solution of increased block size in the Satoshi’s vision concept is successful. Second, despite the second wave of blocks mined on the chain has managed to temporarily lift the BAB price back to 342 USD, the push was short-lived – as Bitcoin .com was speculated to be a temporary miner on the chain and all the blocks to date were mined by Bitcoin .com, the early success of the chain was perhaps evaluated as artificial by the market.
After 22:00 UTC Bitcoin has managed to regain momentum as two new pools, BTC .com and AntPool, has joined the mining and managed to generate eight non-empty blocks within half and hour. These news alleviated the price from 300 USD to 311 USD. However, shortly afterwards these pools started mining empty blocks (22:50, 23:36, 0:28, 0:37). The market was very suspicious towards these events as it could perceive empty block mining as signals of an attack by the rival SV chain. Later on, almost every empty block mined on the chain has induced negative price reaction (see Chart).
The Osiris Team has analysed 289 blocks mined on the chain up until 13:06 UTC today (Source: https://blockchair.com/bitcoin-cash/bloc...). 286 of them were mined by well-known mining pools: Bitcoin .com (157, or 54.33%), BTC .com (60, or 20.76%), AntPool (47, or 16.26%), ViaBTC (17, or 5.88%) and BTC .TOP (5, or 1.73%). Out of those 289 blocks, 16 were empty. At the first glance, the majority (10) of these empty blocks were, suspiciously enough, mined by AntPool (21.28% of AntPool blocks on chain are empty). This, coupled with the fact that Jihan Wu , one of the Bitcoin project supporters, has recently lost executive power at the board of Bitmain, a mining company controlling AntPool (Source: https://cointelegraph.com/news/bitmain-c...), may signal AntPool is aiming at attacking the chain. However, a closer look at the data does not support this claim. First, AntPool is not focusing on mining empty blocks precisely. It is focusing on mining SMALL blocks (average block size of 3.72 kB compared to 442.9 kB of Bitcoin .com or 368.17 kB of BTC .com). This is entirely consistent with the business model AntPool has been sticking with as early as 2017: AntPool does not process transactions that offer low fees to optimise their return on investment and, possibly, to drive the fees up and gain some market power (Source: https://bitcointalk.org/index.php?topic=...). The data is also consistent with this explanation: among the mining pools, AntPool has by far the highest average fee per kB: 2.73 cents compared to 0.48 cents of Bitcoin .com and BTC .com (see Table below). This would not be the case if AntPool has empty block mining as its goal. Nevertheless, the market is still reacting negatively to empty block mining on the chain.
Mining pool Total blocks mined on chain Empty blocks mined on chain Total fees collected (USD) Total block size ( kB ) Fees/kB (cents) Average block size ( kB )
AntPool 47 10 4.78 174.875 2.73 3.72
Bitcoin .com 157 5 332.32 69534.742 0.48 442.9
BTC .com 60 1 105.65 22090.094 0.48 368.17
BTC .TOP 5 0 3.59 343.949 1.04 68.79
Unknown miners 3 0 0.64 27.188 2.35 9.06
ViaBTC 17 0 12.50 3114.982 0.4 183.23
Total 289 16 459.48 95285.83 0.48 329.71
As for now, the block size is reducing on the SV chain and the chain is decisively taking hold of the majority of the hash rate. Given the fact that both chains and their mining pools are mining at major losses (https://cointelegraph.com/news/bitmex-an...), large block sizes and frequent mining in the recent days may have been indeed artificial “warming-up” of the network in order to attract attention. In the longer run, the perspectives of the chain seem more promising as it has already attracted “selfish” mining pools such as AntPool which is crucial for network functioning in the future. Moreover, BAB is probably currently underpriced at 255 USD due to high level of perceived risk around possible 51% attacks and empty block mining. If the chain network manages to consistently control over 50% of hash rate, the price will go up. Therefore, Osiris Team concludes that BAB is by no means a safe, but a promising investment for a weekly investment horizon.
Osiris Finance will resume its duties in forecasting the Bitcoin market from Monday.
Stay in touch and good luck in your today’s trades! We are glad to receive any feedback here at TradingView.
The price slump from 270 USD to 256 USD occurred within a period when the speed of block mining on the ABC chain has significantly decreased (no blocks were mined between 17:05 and 18:02 and between 18:21 and 19:16). Out of past 40 blocks on the ABC chain, only 10 has been mined by Bitcoin.com (25% as compared to 54% previously) which may imply the pool's computational power is being redirected back into Bitcoin mining. That can also explain the recent drop in the network's hash rate (Source: https://cash.coin.dance/).
Waterhole pool has started mining on the ABC chain and has mined two blocks, 557063 and 557081, both of significant sizes (Sources: https://cash.coin.dance/ https://blockchair.com/bitcoin-cash/bloc...). That might at least partially compensate the drop in hash rate after the mining by Bitcoin.com has slowed down.
There has been an empty block mined by AntPool at 4:21 p.m. UTC (block number 557065), however the market has not responded negatively to this event this time. It may suggest that the "empty block" panic is also slowly fading away.
Overall, it can be seen that the market stopped reacting to empty blocks mined on the ABC chain and to the hash rate. As the atmosphere of excessive riskiness of BAB investment disappears, the price will increase. It is always hard to quantitatively assess the coin valuation fundamentally, however it is reasonable to assume that BAB might reach ~430 as the consensus on the network is reached, close to the historical lows of original Bitcoin Cash it has forked from. As adjustable block-size cap (a technological solution the abbreviation of which gave name to Bitcoin ABC) is arguably a Pareto-improvement over the status quo, the fundamental value of the BAB coin should not be lower than the historical lows of BCH provided that the BAB does not succumb to the "hashrate wars" (which is unlikely).