The following article was written by Jens Chrzanowski, Member of the Management Board of Admiral Markets Group AS.
The entire trading world can’t help talking about cryptocurrencies, and there seems to be hot news every week. You’re probably already familiar with Bitcoin, so let’s take a closer look at Bitcoin Cash.
To explain what Bitcoin Cash is, we have to start with Bitcoin…
Cryptocurrencies are still quite new and ever-evolving, and the latest news surrounding Bitcoin was a ‘hard fork’. The term ‘hard fork’ refers to a change in protocol which may split the blockchain in two – or even more – independent chains of blocks following their own path, with a permanent technical divergence between such new blockchains. What happened this week was the splitting of Bitcoin into two cryptocurrencies, Bitcoin and Bitcoin Cash.
If you wish to read more about blockchain forks and are interested in learning about the differences between soft forks and hard forks, you should check out our blog post.
So, the hard fork did happen! On 1 August 2017, the blockchain split in two: you can now trade Bitcoin (BTC) and Bitcoin Cash (BCH) – the two sharing a common history but, from now onwards, a fully independent future. And I’m delighted to say that Admiral Markets is one of the first to enable Bitcoin Cash for leveraged trading, in MetaTrader 4. Some brokers don’t have Cryptocurrencies available for trading at all on this, the most popular trading platform in the world.
The hard fork principle has certain parallels with a stock split, for example – new shares are issued so that the total number of shares increases, and the value of the old shares decreases. This difference is reflected in market theory, by 1:1 in the price of the old and new shares.
The so-called dilution takes place, even if the price loss of the old shares is compensated by additional new shares. However, the new share (Bitcoin Cash) transferred to the Bitcoin hard fork (split) has massively overcompensated this difference.
Even if the history of BTC currently only covers a couple of days, it has already become the third most valued cryptocurrency globally by market capitalisation, surpassing Litecoin and Ripple.
You could call Bitcoin Cash the little sister of Bitcoin. We’ll soon be able to see how fast it’ll grow and how successful it will be. Watch this space…
See you next week!
Do you have any feedback, concerns, requests, maybe even compliments? I’d love to hear them. Please contact me via: [email protected].
Trading on margin carries a high level of risk, and this article should not be seen as advice or solicitation to buy or sell. It’s written for informational purposes only.