Cryptocurrency’s Q4: Expect fireworks during the final months of 2017

The cryptocurrency market enters a final quarter that promises to be just as eventful as Q3, with Bitcoin, Ethereum set for major changes

Cryptocurrency’s Q4: Expect fireworks during the final months of 2017

The month of September is finally over, putting an end to a rather eventful third quarter in the cryptocurrency space. A lot happened during the last three months. In August alone, the Bitcoin price (BTC/USD) surpassed $3,000 for the first time, conquered $4,000 and tested the $5,000 level. The world’s most popular cryptocurrency also saw its first hard fork, which split its blockchain in two, creating a new digital currency – Bitcoin Cash. Also in August the Bitcoin community finally activated the SegWit scaling upgrade, which aims to solve the network’s slowing transaction speeds and rising costs.

Several major altcoins, including Litecoin, Dash and Monero, among others, also set all-time highs in Q3 and the cryptocurrency market grew to nearly $180 billion in size – also a record. The sector enjoyed a lot of positive news and a growing interest from investors.

However, September brought a lot of uncertainty and concerns about the future of the sector, after China’s government banned initial coin offerings and reportedly ordered local cryptocurrency exchanges to halt their domestic trading operations. Later that month South Korea imposed a similar ban on ICOs, dealing another hit on the market.

Despite these setbacks, Bitcoin and its peers managed to bounce back and entered the final quarter of the year in a good position. The original cryptocurrency has returned above $4,000 and most major altcoins have recouped much of their losses. Surely, another rally is on the way, then?

Well, that rally has no yet materialised. The cryptocurrency market may have shown remarkable resilience under pressure, but so far it hasn’t been able to make the leap to the next level. Bitcoin appears to be stuck in the $4,200-$4,400 range (On Sunday the Bitcoin price returned above $4,500 for the first time since September 8); Ethereum is hovering around $300; Ripple is facing stiff resistance at $0.24 and Litecoin remains in the low $50. There’s also been a notable drop in market activity, with trading volumes being well below their highest levels.

All this can easily be attributed to the recent developments in China and South Korea, as well as the scepticism voiced by some prominent Wall Street figures. On the other hand, it could be just the calm before the storm.

The final quarter of the year promises to be just as eventful as, if not more eventful than, the previous quarter. Some of the largest cryptocurrencies on the market are entering what could be a crucial phase in their development. A number of major developments are expected to happen this quarter and each of them could serve as a catalyst for a new rally, or cause a decline. With that in mind, it’s not unreasonable to assume that many investors may have adopted a wait-and-see approach.

Let’s not forget that the better part of July was dominated by talk about the Bitcoin Cash fork and the split of the Bitcoin blockchain. Prior to the event many investors chose to stay out of the stock market, fearing that the split might deal a huge blow to the Bitcoin price. When the Bitcoin Cash fork happened people realised that the fork would not be nearly as detrimental to Bitcoin as many had feared, these investors returned to the market with renewed confidence in the original cryptocurrency. It could be argued that the Bitcoin Cash for sparked the rally that led Bitcoin to its all-time high. The final quarter will offer several events that could have a similar impact on the market.

China

First, let’s look at China’s ban. Some observers suggest that it’s only a temporary measure and that it could be lifted sooner than anticipated. It’s been speculated that the crackdown is just a show of force ahead of the 19th National Congress of the Communist Party of China, which is scheduled for October 18. Assuming that this is correct, there is a good chance that the Chinese government would, at the very least, soften its stance on cryptocurrencies once the party convention is over. Should this happen, it would almost certainly spark another cryptocurrency rally.

As I’ve already stated on these pages, I also believe that China’s ban is temporary. However, I don’t think that it’s a mere demonstration. Rather, it’s an attempt by the Chinese authorities to secure enough time, so that they can come up with a proper regulatory framework for the sector. If that’s the case, it would be more indicative of a genuine interest in cryptocurrencies, rather than a desire to kill off the sector entirely.

This is just speculation on my part, of course, but it doesn’t seem so far-fetched. After all, if Chinese authorities wanted to really hurt cryptocurrencies, they could have easily extended the ban to the country’s robust mining sector. Instead the crackdown targeted ICOs and exchange trading – arguably the two areas of the cryptocurrency industry, where regulation is most needed.

SegWit2x

The SegWit2x hard fork is another key event that will likely have a huge impact on the cryptocurrency market, Bitcoin in particular. Slated for November, this hard fork is expected to be much more significant than Bitcoin Cash, as it has majority support from miners.

SegWit2x was conceived as a compromise between two separate scaling proposals – SegWit, supported by the majority of Bitcoin developers, and the block size increase, which was favoured by the miners. With neither camp willing to back down, combining these two approaches emerged as the only possible solution.

In May the Bitcoin community finally agreed on a two-stage solution that became widely-known as SegWit2x. It was decided that SegWit would be activated and a twofold block size increase would take place within six months of that activation.

However, following a relatively peaceful SegWit activation (Bitcoin Cash was created by a small subset of the Bitcoin community that did not support SegWit), the debate has been reignited. The majority of Bitcoin developers and some businesses and mining pools have withdrawn their support for the ‘2x’ part of the agreement, which still has the backing of most miners. Thus, the possibility of another Bitcoin split coming in November is a very real one. Should it happen, this fork will be much more significant than Bitcoin Cash, as due to the wide support from miners, it will have a real chance of evolving as the major blockchain.

Charlie Lee, the creator of the world’s fifth-largest cryptocurrency, Litecoin, touched upon this in recent comments on how Coinbase would likely handle the situation.

“Because this 2x hardfork is so contentious, Coinbase cannot handle it the same way they handled the ETC and BCH hardfork,” Lee said. “In other words, they can’t just choose one fork and ignore the other fork. Choosing to support only one fork (whichever that is) would cause a lot of confusion for users and open them up to lawsuits. So Coinbase is forced to support both forks at the time of the hardfork and need to let the market decide which is the real Bitcoin.”

Lee’s prediction was spot on. Just a few days after his comments, Coinbase issued a statement, addressing the issue.

“Customers with bitcoin balances stored on Coinbase at the time of the fork will have access to bitcoin on both blockchains. There is no action required from customers and bitcoin can be securely stored on Coinbase before, during, and after the fork,” the company said.

After the fork, we will enable access when we have determined each blockchain is secure and stable. We expect this to happen within a few days after the fork, but it may take longer if additional risks emerge,” it added.

The fork will certainly be one of the most significant events in the cryptocurrency space this quarter. Even if its impact on the Bitcoin network remains limited, it will still affect the market. According to Tuur Demeester, an analyst at Adamant Research, the Bitcoin price could surpass $5,000, if support towards SegWit2x declines.

“The charts need to confirm, but if the Bitcoin 2X hard fork turns out to be a nothingburger, it could provide tailwinds for a rally and $5,000,” Demeester said last week, as quoted by Cryptocoinsnews.

Byzantium

The second-largest blockchain platform, Ethereum, will also undergo significant changes in the fourth quarter. These changes will be introduced by the Byzantium hard fork, which is expected to take place on October 16. Unlike SegWit2x, Byzantium is expected to occur across all Ethereum nodes, meaning that it would not split the current blockchain. The upgrade promises to introduce a number of improvements to the Ethereum, such as making the network faster and increasing smart contract security.

On Friday, during its final scheduled meeting before the event, Ethereum’s core development team expressed optimism that Byzantium would have a smooth release. Ethereum’s most popular client, Geth, already upgraded its code to facilitate the change, with other clients expected to follow suit next week.

It should so be noted that Byzantium is the first of two parts in a wider upgrade called Metropolis. At the moment it is unclear when the second part, Constantinople, will be released.

Never a dull moment

These are the main themes that I think will dominate the cryptocurrency news cycle and the market sentiment during the final quarter of the year. But there will certainly be other developments worth paying attention to.

Ripple, for example, has been making moves lately to expand its global footprint, by opening new offices and forging new partnerships in Asia. It will be interesting to see whether Ripple will continue to pursue this strategy. Also, Ripple’s inaugural conference, Swell, will be held later this month in Toronto.

Meanwhile, Charlie Lee and other Litecoin developers have been working on enabling cross-chain atomic swaps between LTC and other cryptocurrencies. If successful, their efforts could provide a way for users to cross-trade different digital currencies.

Sceptics will undoubtedly continue question cryptocurrencies’ value and potential. Regulatory scrutiny will likely continue to intensify. Who knows what else might happen by year’s end. One thing is almost guaranteed, though - the final quarter will bring new twists and turns to the cryptocurrency narrative.

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