Teeka Tiwari on Bitcoin's "Second Nerd War"
A “Second Nerd War” is breaking out in bitcoin and this one may get bloodier than the first before the dust settles. In today’s essay, I want to tell you what’s behind this war how to ride it out and where bitcoin (and the overall crypto market) is heading when it’s over. Just know that we’ve seen this before. These growing pains are normal for a maturing asset class.
Bitcoin fell from $6,434 last Monday to a low of $5,358 on Thursday—a 16.7% drop. The entire crypto market is down about 20% over that span. Over the past 48 hours, I’ve reached out to my network of insiders to find out what’s behind the sell off. And they tell me that the main cause is a new split in the bitcoin community.
You see, a major bitcoin holder has threatened to crash the price over a contentious “fork” involving the crypto Bitcoin Cash. Bitcoin Cash itself is the result of a fork with bitcoin. (A crypto fork is like a corporate spin-off.) Craig Wright leads one faction. He claims to be the real Satoshi Nakamoto (the pseudonymous creator of bitcoin). Wright reportedly mined over 1 million bitcoin in the early days of the network. At today’s prices, that’s about $5.5 billion.
Roger Ver leads the other faction. Ver was an early advocate of bitcoin and formerly known as “Bitcoin Jesus.” Bitcoin Cash scheduled its latest fork for November 15. The network regularly forks to implement upgrades… so this isn’t uncommon. However, the two crypto titans differ over the direction of Bitcoin Cash after the fork.
Without getting into all the technical details, Ver supports updating the Bitcoin Cash network to implement increased scaling and smart contract options. Wright considers these changes unnecessary and wants to return to the original bitcoin protocol. To force adoption of his protocol, Wright has threatened to dump his bitcoin holdings. That has led to panic selling… dropping bitcoin to its lowest price since October 2017.
The split is basically a high stakes game of chicken. Here’s the thing… We’ve seen it all before.
The First Bitcoin “Nerd War”
In March 2017, I told you about the first “Nerd War” in the bitcoin community. This split was similar to what we’re seeing today. At that time, one faction wanted to upgrade the network to allow for faster transaction times. The other faction of purists didn’t want to change the protocol at all.
The schism walloped bitcoin and the entire crypto market. We saw three significant price drops during the first “Nerd War”:
In January 2017, bitcoin dropped from $1,173 to $821.
In February 2017, bitcoin dropped from $1,066 to $962.
In March 2017, bitcoin dropped from $1,271 to $911.
No one had ever seen anything like the first “Nerd War” before… And there was a massive loss of confidence in the market. But once the dust settled, bitcoin recovered and shot up to nearly $20,000 by the end of the year. The difference today is that investor sentiment is very poor so it doesn’t take much for people to panic and sell. In addition, more people hold crypto today than in 2017. That’s causing even more downside volatility.
Our position is the same we had last year: Ignore the nerd war and volatility. It will blow over and ultimately make bitcoin and crypto in general stronger.
Remember, bitcoin has real fundamental value, including traits such as:
* Self sovereignty of your assets (you control your assets, not some bank).
* Tamper proof accounting (data on the blockchain can’t be corrupted or falsified).
* Confiscation resistant (it’s difficult for governments to seize crypto assets).
* The ability to verify data (without the need of a “trusted” third-party).
* The ability to transfer assets (including money) and records nearly instantaneously and at
low costs.
These are massively valuable attributes. And developers have barely scratched the surface when it comes to monetizing them. That’s why we’re beginning to see widespread institutional adoption of cryptocurrencies that solve real world problems.
Where Crypto Is Headed
Today, we’re seeing a great deal of adoption. In the coming months we’ll see:
The launch of Bakkt in December. It’s the global digital asset exchange being put together by the Intercontinental Exchange, owner and operator of the New York Stock Exchange. When launched in December, Bakkt will provide institutional money managers with custody solutions and a regulated, secure platform.
A new partnership between TD Ameritrade and crypto exchange ErisX. ErisX will be similar to Bakkt. TD Ameritrade has over 11 million funded customer accounts with $1.2 trillion in assets under custody.
The trading of Fidelity Investments’ new crypto products. Fidelity is even bigger than TD Ameritrade, with 27 million customer accounts and $6.9 trillion in assets under custody. Bitcoin is here to stay… And if bitcoin is here to stay, so is the rest of the crypto ecosystem.
So what to do now?
We’ll use the same strategy we used in 2017 to deal with the first “Nerd War”: Just let the market do what it has to do and stay focused on the big picture. These factions will hurl insults and threaten each other. That freaks out the market. And that’s what’s happening now.
Let the nerds fight it out. Regardless of who wins, we’ll see bitcoin soar again.
Let the Game Come to You!
Teeka Tiwari
Editor, Palm Beach Confidential
