Disclaimer: These are my own opinions and not investment advice!
Last weekend saw a huge shift between the price of bitcoin and bitcoin cash (bcash). Bitcoin fell from a peak of $7,800 on Wednesday November 8th, to around $5,500 at one point on Sunday November 12th. Bcash on the other hand quadrupled in price from around $600 to a high of $2,500 over the same period.
Now it’s not unusual for bitcoin to swing in price this much, but the big difference this time appeared to be that the money was flowing from bitcoin to bcash.
At the time of writing bitcoin appears to be making a recovery ($6,400) and bcash has pulled back somewhat to around $1,500.
Bitcoin or Bitcoin Cash?
I’m not going to get into the argument of whether bitcoin, or bcash is the future “bitcoin”. Nor am I going to discuss the merits and short comings of each.
All I will say is that a large number of people are adamant that bcash will replace bitcoin and an even larger number are convinced bcash will die a slow painful death.
One thing is certain:- they can’t both be right.
Now if you have no real allegiance to either and want to protect against either one failing, then it might just make sense to hold both, in equal numbers.
Before the fork
Everyone that held bitcoin prior to bcash fork will already have an equal number of both (unless you sold already). This means whichever wins out of the two, you will still hold the same amount as your original bitcoin investment.
I fall into this category for the majority of my bitcoin holding. In fact over the weekend the overall value of my portfolio of bitcoin and bcash hardly moved. The combined price of bitcoin and bcash hovered around $8k ish.
All that actually happened was the value shifted from bitcoin to bcash (and back again). This meant I slept relatively easy at night, despite the $2,000 crash in bitcoin at one point!
After the fork
What if you bought your bitcoin after the fork? Well if you want to hedge you risk of either currency failing, then you could sell enough of your bitcoin and buy bcash to even out your holdings.
At the time of writing if you hold 100% bitcoin you would need to exchange 20% of your bitcoin for bcash to equal your holdings out. You can check the exact price at coin desk. Just take the amount bcash is worth in bitcoin as a percentage.
You currently hold 1 bitcoin worth $6500. So you sell 20% and buy bcash for the same amount. You now hold 0.80 bitcoin and 0.80 bitcoin cash worth $6,500 in total.
Note that you are now exposed to price movements in both bitcoin and bitcoin cash.
What’s potential the downside?
The downside is that bcash ultimately fails and you end up with 20% less bitcoin than you would have.
What’s the potential upside?
Bitcoin cash becomes the new “bitcoin”. Bitcoin dies, but you still have 0.80 bitcoin cash (as opposed to nothing if you kept it all in bitcoin cash).
What’s likely to happen?
That’s anyone’s guess, but until there is a clear winner you are probably going to end up with an investment similar in value to your original holding, but with differing values of bitcoin and bitcoin cash.
This is what happened to me over the weekend. Sure I could have made more money by trading between the two, but I could have just as easily lost money doing that too.
Disclaimer: I hold bitcoin and bitcoin cash. This article expresses my own personal opinion and should not be taken as investment advice. Investing in crypto currencies is high risk. Always do your own research and be prepared to lose whatever you invest.