It’s been a while since I last wrote an update on bitcoin and other digital currencies, so here’s a quick rundown of what’s been happening so far. For the newbies out there, make sure you read up on my Primer on Bitcoin Trading first!
BIP 91 gets locked in
If you’ve been keeping up with bitcoin industry developments in the same obsessive way Big Pippin stays updated on Game of Thrones, you’ve probably heard of a little something called BIP 91 and SegWit.
You see, cryptocurrency market players (miners, traders, investors, startups, exchanges…. you name it!) had been fretting about a potential hard fork for the past few years as the bitcoin network struggles to handle more transactions. A hard fork would mean splitting bitcoin into two (or more) separate versions of the cryptocurrency, so you can imagine the incompatibility issues that may arise.
There have been a few positive developments here and there that signaled that stakeholders and creators of various bitcoin software are seeing eye to eye and would agree to merging into one version that would rule them all, but the most assuring one so far has been the activation of BIP 91.
BIP 91, which is short for Bitcoin Improvement Proposal 91, has garnered more than 80% support from miners, basically rendering other versions obsolete. It also helps that this is compatible with the New York Agreement and is backed by several mining pools.
As you’ve probably guessed, this was enough to revive demand for the cryptocurrency, which skyrocketed close to its all-time highs last week. But, just as in your most memorable GoT episodes, there was a plot twist coming…
SegWit still in the balance
SegWit is short for Segregated Witness that is a sort of workaround in addressing scaling issues. Simply put, this chops off chunks of transaction data to free up space for more without necessarily limiting the block size.
Now a lot of developers and miners still aren’t completely sold on this idea and a lot could happen until August 1, which is when the User Activated Soft Fork would kick in. The lack of consensus on which bitcoin software to honor could still leave the network vulnerable to a hard fork.
Another proposal separate from BIP 91 called “Bitcoin Cash” has been making its way around the headlines, as the likes of Roger Ver and other big names like ViaBTC, Houbi, and Bithumb have expressed support for this version. Even without going into the nitty-gritty of these proposals, it seems pretty clear that the rival factions aren’t putting their swords down just yet!
Because of that, bitcoin tumbled more than 10% to test the $2,500 level once more earlier this week and could be in for a few more big moves until the issues are resolved.
Derivatives clearing legislation for LedgerX
With the rejection of the COIN bitcoin ETF earlier this year, one might think that U.S. financial regulators are strongly opposed to cryptocurrency products. However, the CFTC just announced that it has issued an order granting derivatives clearing legislation for LedgerX.
LedgerX is an institutional trading and clearing platform that also offers tools to trade bitcoin and cryptocurrency swaps. For now, the order covers fully-collateralized digital currency swaps but the company also plans to clear bitcoin options. The CFTC also clarified:
This authorization to provide clearing services for fully-collateralized digital currency swaps does not constitute or imply a Commission endorsement of the use of digital currency generally, or bitcoin specifically.
While this development could offer traders a way to reduce their risk on their cryptocurrency bets, it could also be a double-edged sword for those who are easily dazzled by potentially outsized returns and do not know how to trade on margin. Consider yourself warned!