Since September 15th, Bitcoin has appreciated by about 90% to hit a high of $6160.80 last Saturday. However, in the past three trading sessions, the BTCUSD pair has lost about 15% to trade at $5390 levels. While the restrictions brought about by the Chinese government is popularly believed to be the major reason for the decline, it is actually the Bitcoin Gold hard fork – initiated on Tuesday morning in Hong Kong – that caused the fall. However, as explained below, there were some positive developments in the US and Japan that favor a bullish reversal in the days ahead.
After the block 491,406 was mined, Bitcoin Gold hard fork was initiated on Tuesday. Back in August, the first Bitcoin network fork happened, which resulted in the creation of Bitcoin Cash. So, what exactly is a fork? It is simply a technical change that is brought about by Bitcoin network participants who do not agree with some of the transaction rules.
A fork leads a blockchain into two different paths. A hard fork, like the one that created Bitcoin Cash and Bitcoin Gold, is not backward compatible. A soft fork is backward compatible. There is also another category, known as a user-activated soft fork, which involves breaking the network without direct support from those who provide the network’s hashing power, is only theoretical and nobody has tried it yet.
The newly created cryptocurrency is distributed freely on a 1:1 basis to those who had Bitcoin in their cryptocurrency account at the time a fork is initiated. Thus, investors usually accumulate Bitcoin before a fork happens and that leads to a sharp rise in price as we have seen in the case of Bitcoin. Since the fork is now completed, the Bitcoin sees a sell-off, as investors are guaranteed their Bitcoin Gold on a 1:1 ratio.
Even Etherium, another popular cryptocurrency went through the forking process a few months earlier. However, in the case of Bitcoin, the fall is only temporary as the cryptocurrency is gaining wide recognition from governments as detailed in the next paragraph.
Just a week or so has passed after the first US-regulated Bitcoin derivatives and options platform named Ledger X has come into existence and it has already done a trade volume of over $1 million. Further, the adoption rate of bitcoin in developed markets such as Japan indicates that the Bitcoin saga has just begun.
The fork was initiated to create a cryptocurrency that can shorten the confirmation time in a blockchain network. Notably, the arrival of the SegWit2x solution to boost the transaction capability of the Bitcoin network, which can currently process only about 1Mb transaction in 10 minutes, is expected to bring in exciting improvement in the blockchain network. Thus, the decline is just temporary, as the fundamentals of robust, transparent accounting will continue to attract investors across the world.
The BTCUSD pair is nearing its major technical support level of 5244. The RSI of the moving average is also moving toward the oversold region indicated by a reading of 20. Thus, we can expect a trend reversal in the cryptocurrency.
To gain from the probable trend reversal of the BTCUSD pair, we may go long in the BTCUSD pair at about 5250, with a stop-loss order below $5050. If the forecast turns out to be true, we will book our profit near $6030.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
