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Bitcoin has been suffering habitual price declines over the past six weeks, with markets turning their attention to the uncertain outcome on 1 August. That date represents the day upon which bitcoin could end up splitting into two entities.
Recent years we have seen the community attempt to address issues that are currently blighting the cryptocurrency: transaction speed, capacity and operational costs. With current transactions limited to a set amount per ‘block,’ a number of code changes have been proposed to allow a great amount of transactions per second. Chief among these was the Segregated Witness (SegWit). However, due to a lack of support from bitcoin miners, a new upgrade to that process has been proposed, entitled SegWit2X.
Essentially, the argument is about how these transactions are processed. Some wish for a degree of centralisation, which has been relatively unpopular given the historically decentralised nature of bitcoin.
It also comes down to who should be in control of the direction that bitcoin will take, with miners, nodes, holders and developers all vying for influence. Ultimately, this could resolve in a split, with two simultaneous chains running and bitcoin taking two forms.
Interestingly this is what happened in Ethereum, with the current market consisting of both Ethereum and Ethereum Classic. While this uncertainty initially led to a sharp devaluation in the immediate aftermath, we subsequently saw gains of over 3000% in the following months. Is this a blueprint for early August?
Looking at the chart, we can see that while bitcoin has been selling off sharply, this comes in the wake of a sharp extended rally back in March/June. However, the further this goes down, the better it looks as a buying opportunity. So far we have seen a sharp move higher from the 50% retracement. But, should we see any further downside come into play, it would look particularly attractive to get long around the 61.8% (1719).