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Bitcoin Inches Closer to the Abyss

Written by Alex Koyfman
Posted November 9, 2017 at 7:18PM

Hidden inside the immense potential and revolutionary technology that drives Bitcoin is also the seed of destruction.

This week, it seems, that seed has finally sprouted. 

You see, one of the fatal flaws with Bitcoin — perhaps its only real weakness — is the problem of scalability. 

With the way the blockchain is constructed, there is today an absolute ceiling to the number of bitcoins the system can support: 21 million units. 

Price per Bitcoin has been shooting up lately, showing the world that market capitalization can grow dramatically even without the prospect of flooding the market with more and more bitcoins, but that process cannot go on forever, especially at the speed at which it's been happening for the last couple months. 

One of the ways around the problem of blockchain limitations is to split Bitcoin itself up into more than one entity. 

This step has been referred to in the past as a "fork," and it was executed successfully this past summer in the form of Bitcoin Cash.

Think of it as a stock split, only applied to digital currency.

On the day that fork took place, all existing Bitcoin holders received a free gift: a single Bitcoin Cash unit to go with every unit of Bitcoin they already owned. 

Today, a single such unit of Bitcoin Cash is worth more than $600 and accounts for a market capitalization of over $10 billion, making it one of the most valuable and actively traded cryptocurrencies in its own right. 

Since that fork, the price of a single bitcoin has more than doubled, going from the low $3,000s to just under $7,900 — driven by popularity in both usage and speculation.

Stop-Gaps, Band-Aids, and Half-Measures

Clearly, another solution was required if this growth was to be sustained, and that solution was set to take place just nine days from now, on November 18, 2017, in the form of another fork: Segwit2x.

Yesterday, however the decision was made to officially cancel the Segwit2x split. 

Citing lack of community support as the reason, the planners behind Bitcoin called off the split, sending themselves back to the drawing board in search of a new solution to expand the blockchain. 

It was a move that did what no force in the cryptocurrency universe was able to do this year: knock Bitcoin off its well-established trajectory. 

Bitcoin responded immediately and has been reeling ever since. 

Here is what the last 24 hours of trading have looked like:

bitcoin24

Now, granted, losing a few hundred dollars for a couple hours isn't an alien concept to Bitcoin, but now, for perhaps the first time since the beginning of the historic run-up, that rally seems to have stalled — and that could have some serious ramifications for what has been perceived as a bulletproof commodity. 

In a game where few understand why an investment is intrinsically valuable, even among those who own it, investor confidence is the main driving force behind growth.

The Birth of Viral Speculation

People buy more because they see others buying more. A lot more. 

Well, with the Bitcoin community itself now split over this latest course of action — most importantly the miners (Bitcoin producers) themselves — we have taken a potentially unprecedented turn.

Doubt on this level could finally burst the bubble, creating a cascade of selling to match the marathon of buying that brought us to this point. 

It happened with the first major financial bubble ever — the so-called Tulip mania of 17th century Holland, which pushed the price of single tulip bulbs past the cost of an average home at the time.

tulip mania

And it's happened again and again since that moment with every other manic bull run — right up to and including the dot-com and housing bubbles of the early 21st century. 

With Bitcoin, the problem is compounded, because with every bubble preceding Bitcoin, at least investors had some understanding of what they were speculating on. 

Today, all they know is that Bitcoin is valued by other people — people presumably in the know. 

They cannot touch a bitcoin. They cannot really see a bitcoin. All it is, is a price tag attached to something abstract. 

Once the one certainty relating to this investment is pulled away — a bull market — there is nothing left to hold the rally. 

Add to this the problem that the story of Bitcoin itself is becoming so widespread that new potential speculators are growing more and more rare, and we've reached a perfect storm scenario. 

This last problem is something you've probably seen for yourself. 

When your senior citizen relatives start talking about Bitcoin and how great it is, you can be sure that the peak is near or, very likely, already passed.

Is Bitcoin 2.0 Already Here?

Does this mean the crypto revolution is over?

Not by a long shot. 

Remember, there are other cryptocurrencies out there, most of them tiny compared to Bitcoin and almost completely unknown. 

Many of these alternative cryptocurrencies, dubbed "altcoins," are newer and more advanced than Bitcoin itself and lack some of bitcoins built-in weaknesses. 

There are many of them out there, but a select few are destined to achieve and perhaps surpass Bitcoin's size and popularity. 

Identifying the winners among the field of competitors isn't an easy task, but it's something we've been working on for the last several months.

In anticipation of just such an event with Bitcoin, we've finally compiled our research into a first-ever report on which altcoins the crypto bull market will pick next. 

We've found just two from the list of hundreds that fit the bill. 

Click here to access that report.

Fortune favors the bold,

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Alex Koyfman

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Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.

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