Could bitcoin split provide a buying opportunity?

With a bitcoin battle looming, could we see a buying opportunity amid market uncertainty? 

Source: Bloomberg

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).

Bitcoin trading

You don’t need to own cryptocurrencies to trade on them.
Find out more about trading on bitcoin with IG.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by writer