Bitcoin’s three-year civil war, which so thoroughly divided the community into armed camps, appeared to come to a close with the activation of BIP 91 just over a week ago.
BIP 91 is the first step in implementing the SegWit2x scalability proposal which is supported by the vast majority of economic actors and miners. There is, however, one significant wild card. It’s called ”Bitcoin Cash.”
Bitcoin Cash is supported by some notable members of the “big block” camp, such as Roger Ver, and on Aug. 1 it will hard fork from the main Bitcoin network, causing a chain split. Most people expect this to be a non-event, with Bitcoin Cash immediately being relegated to “altcoin” status. However, there is significant potential for market disruptions, and Bitcoin Cash has the potential to strongly affect Bitcoin’s value.
Bitcoin Cash presents a significant challenge in how exchanges deal with customer’s funds and margin orders.
Many Bitcoin exchanges have agreed to list Bitcoin Cash and to credit Bitcoin Cash funds to their customers' accounts properly. There remain significant differences in how exchanges intent to do this, particularly concerning margin orders.
Kraken has decided that margin longs will be credited with Bitcoin Cash, while margin shorts will owe Bitcoin Cash to the exchange.
Bitfinex has taken the opposite position, awarding Bitcoin Cash to those who are margin short and requiring margin longs to pay Bitcoin Cash to the exchange. As a result, traders on Bitfinex are overwhelmingly “short,” while traders on Kraken are likely disproportionately “long.”
The potential exists for Bitfinex’s Bitcoin price to skyrocket as shorts are closed, while Kraken’s Bitcoin price could collapse because of margin long positions being closed.
Bitcoin Cash futures have reached as high as 25 percent of the Bitcoin price, leading some to believe that the new asset will be more robust and valuable than generally expected.
Should the price of Bitcoin Cash tend toward zero, the fork will likely be a non-event, and all Bitcoin owners will also own a corresponding amount of worthless altcoin.
On the other hand, if Bitcoin Cash’s price exceeds expectations, it could cause miners to abandon the main Bitcoin chain and mine Bitcoin Cash. The market could also react very unfavorably, causing Bitcoin to dump if Bitcoin Cash soars.
Finally, there is limitless opportunity for market manipulation.
Some, like Ver, have suggested they are willing to part with hundreds of thousands of Bitcoins, selling them in order to buy additional Bitcoin Cash. Large sell orders could cause significant market disruptions.
Additionally, Bitcoin exchanges are seeing liquidity dry up as traders move their funds to cold storage in anticipation of possible problems. The lack of funds on exchanges could cause rapid price movements and extreme volatility.