- The meltdown in crypto markets raises an obvious question – what’s causing the price falls?
- Senior staff at Australian-based crypto exchanges told Business Insider the falls may be due to uncertainty stemming from a hard fork of Bitcoin Cash on Friday.
- Many exchanges have halted trading in Bitcoin Cash. However, the ones we spoke to reported a sharp rise in trading volumes for other cryptos since volatility spiked.
Crypto markets had a meltdown overnight, as Bitcoin slumped more than 10% to fall below $US5,000 for the first time since October 2017.
As usual, when Bitcoin fell all the major alt-coins followed suit. And in the murky world of semi-regulated crypto markets, catalysts for the sharp price volatility can be hard to pinpoint.
After all, the world’s three largest exchanges by trading volume are all based in off-shore tax havens — not exactly a market backdrop which promotes transparency.
We followed up with the operators of a number of Australian-based crypto exchanges, to try and get a gauge on what’s caused the big drop in price.
A common theme emerged — the ongoing dispute among Bitcoin Cash (BCH) developers which led to a hard fork of the currency on Friday.
Bitcoin Cash itself was the result of an August 2017 fork, led by developers who wanted to speed up Bitcoin’s transaction capacity.
The new dispute is between BCH developers who want to add new protocols, and those who would rather keep it largely the same.
Friday’s BCH fork has resulted in the formation of Bitcoin ABC (BCH with new protocols) and Bitcoin Satoshi’s Vision (BSV).
Reportedly, both sides are now furiously mining blocks on their respective blockchains to establish control.
And according to Adrian Przelozny, CEO of Independent Reserve, that battle may be serving as a catalyst for the recent price action.
“Both sides are mining blocks at a loss, where the electricity and hardware costs are greater than the rewards from mining,” Przelozny told Business Insider.
The groups involved in the Bitcoin Cash dispute “have been around for a long time” and may have significant crypto holdings at their disposal, he said.
And the warring parties have made claims of “dumping a lot of crypto onto the market” to finance their mining operations.
Derek Henningsen, head of legal & compliance for the Australian office of the global Huobi exchange, also pointed to the Bitcoin Cash dispute.
“The recent Bitcoin Cash hard fork and the hash war between competing camps could be impacting on the price falls,” Henningsen said.
Przelozny added that “most, if not all, exchanges aren’t allowing deposits and withdrawals in Bitcoin Cash” right now.
Independent Reserve halted all trading in BCH at around 9pm last Thursday, prior to the hard fork.
“That’s mainly because during a fork, the blockchain is very unstable. No one really knows how it’s going to play out and that creates a lot of uncertainty,” Przelozny said.
Still, from an exchange perspective, the latest selloff hasn’t been a bad thing. Both Independent Reserve and Huobi reported a sharp rise in trading volumes since prices began falling.
Trading volumes have gone up “about 200% since the start of the BCH hard fork”, Przelozny said.
“Like other exchanges around the world, we have seen increased trading volumes as volatility has increased, particularly in the last week,” Henningsen said.
Where the price action goes from here is anyone’s guess, although Przelozny said he expect the Bitcoin Cash controversy to “blow over” within the next couple of weeks.