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Capitalist View on a Bitcoin Hard Fork

I thought I’d write a few thoughts about what the rational capitalists will likely do in the event of any Bitcoin hard fork that is remotely contentious:

1/  A far larger amount of Bitcoin will be deposited on exchanges than is usual, allowing investors to sell at will depending on how they interpret the events both before and after any hard fork.

Why is this interesting?  Firstly, it risks a massive collapse in value if investors panic and bears smell blood.  It is my view the at the recent PBoC panic is nothing compared to what might happen.  Secondly, it means that a switch to Proof-of-Stake would make exchanges and investment funds the kingmakers (see point 7 below).

2/  ALL exchanges will support both coins … following the success of Ethereum Classic’s trading volumes (which had 0.5-1% of hashpower for a couple of days following the fork), exchanges will not want to miss out on the transaction fees nor have exposure to replay attacks, etc..  They will be prepared and ensure their clients have full freedom … the only way to avoid falling out of favour.  We live in a world where PascalCoin can have $50million in volume traded in a few days … the chances of exchanges not supporting ‘both’ Bitcoins are near zero (there may be an exchange or two run by morons who don’t like money … they will go bust).

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3/  While most people will sell for fiat currencies, I think Altcoins like Ethereum, Litecoin, etc. will likely surge (vs BTC) due to the uncertainty … altcoins are already seen as ‘hedges’ vs Bitcoin by many traders.  People that were  90-100% BTC pre-fork may eventually re-buy to perhaps 60% (when the dust has settled).  Doesn’t sound like much?  Altcoins will move 100’s of percent.  More than one will have a market cap above $1billion.

4/  After the inevitable crash, the obvious ‘pairs trade’ speculators will opt for is to sell the coin with less developer support, and buy the ‘Core’ chain.  Like or loathe it, traders will play the odds and expect the non-Core team to have problems or, at best, very slow development.  The non-Core chain will carry a ‘newbie’ discount while the new development team & adoption metrics are assessed by the market.  Investors will prefer to buy the Core roadmap which includes changes required for Lightning and similar networks.

“You know what’s cooler than a billion Indians buying their vegetables with Bitcoin? Bitcoin being the settlement system for the $7trillion/day FX market … AND a billion Indians buying their vegetables with Bitcoin”

5/  The majority of miners will continue to limit block capacity on both chains.  Regularly full blocks are worth at least 4-5x in transaction fees.  They will continue to game the fee calculators used by most Bitcoin wallets.  Those who believe larger blocks will bring about near-free transactions again will be disappointed.  Only competition will force transaction fees down (i.e. optional settlement of a payment channel, sidechains, etc.)

6/  No-one will waste $millions trying to attack the minority chain. The worst ‘bad actors’ are likely to do is market sell their coins on that chain to hurt its value and discourage HODL’ing.  This failed spectacularly with Ethereum vs Ethereum Classic even when only 1-3 exchanges traded it!  Only a lack of investor/user interest can kill a coin (although they never truly die).

7/  If either chain comes under attack by hostile miners, you can expect a switch to a new PoW or hybrid PoW/PoS algorithm to make it very expensive and nearly impossible for them.  If it was me forking against hostile miners, I’d also jump 3.5 years to have the next halving event immediately … likely creating a resurgence in investor and therefore profit-seeking miner interest.  Existing users will love it.

8/  The customer is always right:  both chains will survive as long as there is demand. Miners, exchanges, wallets/vaults, etc. merely follow the users.  Users want the value of their investment to grow and will therefore invest in the most persuasive team/roadmap combination.

9/  Attempting to convince a bunch of libertarian Bitcoin believers to do something through force, blackmail or threats will backfire spectacularly.  It is so obviously a bad idea for anyone that wants to retain their wealth and reputation that you wonder why some are concerned it might happen.

If you liked this article, please consider tipping my Son’s Denarium Physical Bitcoin

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One Response to “Capitalist View on a Bitcoin Hard Fork”

  1. ” I’d also jump 3.5 years to have the next halving event immediately … likely creating a resurgence in investor and therefore profit-seeking miner interest. Existing users will love it.”

    lol, cheers!

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