August 1st saw the long debate over the future of Bitcoin end with a fork in the cryptocurrency. The debate was between the users and miners of Bitcoin over the scalability, cost and speed of transaction. The fork gave rise to Bitcoin Cash which differs from Bitcoin in terms of quantity, value and size.
When an equity has a stock split, in an efficient market, the value should fall perfectly to reflect this. However, the fork is not a split but the introduction of an alternative coin. Since the fork, the value of Bitcoin has surged to new heights.
The value of Bitcoin has increased by approximately by 60% since the fork to its highest close on 16th August. At the time of writing, Bitcoin currently sits at approximately US$4016 and has increased by 324.2% year-to-date.
There are several factors that have caused this surge in value. Firstly, the debate and talk of a fork caused a lot of uncertainty for investors and Bitcoin users. Investors don’t like uncertainty and it causes prices to remain low as demand falls and investors remain on the sidelines holding their wealth in other assets such as cash or safe havens such as gold. Therefore, after the fork, the uncertainty element dissipated and investors bought back into Bitcoin, therefore increasing demand and price.
The result of the fork is the increased processing power of Bitcoin, therefore increasing the longevity of its use. The network of Bitcoin continues to grow, the volume and value of transactions continue to increase. Many investors see the demand for Bitcoin for everyday use to increase further. The increase in usability and expectation of Bitcoin use will stimulate demand and thus increase the price.
Japan and North Korea
A big factor is Japan. Japan is the second largest Bitcoin exchange market behind the US. From 1st August, Bitcoin has been made legal tender in Japan, with 300,000 retail stores accepting the digital currency. In addition, there is zero-fee trading at exchanges which make Bitcoin trading cheap. These factors have created a large demand in Japan for Bitcoin and it is only going to increase due to big conglomerates creating trading platforms for Bitcoin such as GMO; a large internet group.
Finally, recent political tensions between North Korea and US have led to investors dumping traditional investments such as equities and fixed income and buying into safe havens such as gold and Bitcoin, therefore inflating the price.
The increase in price may not be over yet. Since the surge, analysts have been expressing their opinion on the future price of Bitcoin. Wall Street analyst Tom Lee predicts the value of a coin to be $6000 by the middle of 2018 and $25,000 in 2022. Similarly, analyst Ronnie Moas predicts $7500 in 2018 and $50,000 in 10 years. However, an analyst from Goldman Sachs; Sheba Jafari has said the value could increase further before a correction in price would halve the value.
All the speculation is not over, the future of Bitcoin will again be the talking point in November as the developers of Segwit2x have scheduled another fork. So just watch this space!