One of the world’s most controversial cryptocurrencies has also become 2020’s best performer in dollar terms — what happened?
In the autumn of 2019, two young, unassuming college students drove two-and-a-half hours from Hartford Connecticut to attend a Chinese-led blockchain and cryptocurrency event in New York City.
But they weren’t there for the free lunch.
No, the pair were there for an opportunity to listen to Craig Wright speak. Not because Wright has claimed to be Bitcoin’s inventor Satoshi Nakamoto, but because Wright is the acknowledged co-creator of Bitcoin Cash Satoshi’s Vision.
To be sure, the Chainsights 2019 event in New York was not well-attended, so even attendees who had not paid for a free lunch got one as well.
But unlike the curious suits and the other (mostly) Chinese attendees, the college pair were there for one thing and one thing only, to listen to the words of Craig Wright and to understand the future of Bitcoin Cash Satoshi’s Vision.
Because despite the controversy surrounding Wright, who has claimed (repeatedly) that he is none other than Satoshi Nakamoto, inventor of Bitcoin, Bitcoin Cash Satoshi’s Vision (BSV) has been quietly working in the background, with its supporters and community, humming away at trying to create value for the network.
In October 2019, BSV was hovering around US$86, but it was also incredibly difficult to buy.
Binance and Kraken had both delisted BSV, leaving only a handful of reputable cryptocurrency exchanges where BSV could be had.
At the time, in a research note to clients, I suggested that BSV might be worth taking a look at, purely because the downside risk for a BSV position was relatively capped and the upside potential far outweighed that downside risk.
Historically, BSV had never dropped below US$39, a level which it rebounded strongly from and during a time when both Bitcoin alternatives, BSV and Bitcoin Cash (BCH ABC) were going head-to-head against each other.
Based on internal models, in October 2019, we had projected BSV going up to probably just over US$110 before coming back down again, at a relatively leisurely timeframe of two months — a trade that all risks being considered, was a reasonable position to take.
BSV did eventually rally to around US$130, with profit-taking advised at US$110 to US$120.
BSV eventually pulled back to US$86 again last Christmas and in another research note to clients, I suggested that this was, yet again, a relatively good time to pick some up.
This time however, I suggested profit-taking at US$180 with a strong resistance at US$200 on the back of stronger volumes and stronger technical indicators of an impending rally — I was wrong.
BSV not only blew past US$200 which I had identified as a strong level of resistance, it now trades above US$350, even going so far as to crash the few cryptocurrency exchanges where BSV is available.
To be sure, BSV had promised a major event in January of this year — this is perhaps it.
And there may be other factors at play which can be attributed for the recent pump of BSV.
A favorable court decision for Craig Wright, who will not be required to pay back thousands of BTC to the estate of David Klein helped to buoy bullish sentiment in BSV.
And while Wright has not yet managed to unequivocally prove that he is indeed Satoshi Nakamoto, Bitcoin’s eponymous founder, the court ruling has certainly added to the “BSV effect.”
But then, cryptocurrencies across the board have all risen, thanks in no small part to the rise in Bitcoin, why should BSV be any different?
Despite having been written off by many in the cryptosphere, BSV has enjoyed a large and more importantly, fervent, grassroots-led community.
People such as the college students who were willing to drive 5 hours round trip to New York City, just for the possibility of seeing Craig Wright speak in person— Wright ultimately spoke via pre-recorded video message from London.
But beyond the cult of personality, there are other factors which have long pointed to BSV being undervalued (at the time).
Natural skeptics, of which there are many, are no doubt waiting for BSV to crash after the recent epic pump.
But there is at least some reason to consider that BSV may only be a small step into a longer drawn-out ascent.
Because for starters, it’s gunning for Bitcoin’s position, not just a podium finish.
Born out of a hard fork of Bitcoin Cash on November 15, 2018, BSV wanted to increase the blocksize greater and faster to facilitate actual use as a currency.
BSV, although controversial, also quietly managed to amass a not insignificant number of developers and corporate adopters, even going so far as to co-operate with governments, to work within the boundaries of existing regulations — something that Bitcoin purists would decry as an affront to the libertarian underpinnings of Bitcoin.
Boasting features such as low and more importantly predictable transaction fees, as well as greater transparency, working to be business and regulation-friendly, BSV gradually saw adoption quietly behind the scenes.
Wright’s headlines did little to add credibility to BSV, but when one considers objectively that for businesses, especially large ones, to consider adopting a cryptocurrency, working within the law, is generally preferred to working in gray areas, it comes as no surprise that companies picked BSV instead of Bitcoin itself.
Which is why BSV and its proponents’ willingness to work with regulators caught the attention of many.
And unbeknownst to the majority in the cryptosphere, BSV catered to many of the needs of businesses — including high availability with a stable network and protocol, in-built data privacy features and smart contract as well as token capability — all of which are significant pain points companies are looking to address.
As recently as October last year, Jimmy Nguyen, on stage in New York City’s Marriott Marquis Hotel, spoke of the transformative potential of BSV, for individuals and businesses.
But few in the cryptospace paid attention.
Because backing any specific cryptocurrency can and often is, akin to following a religion.
But for traders and investors, the more relevant question is — can BSV go up any further?
The cop-out answer would be, “it depends,” but a more reasoned answer would suggest that on a balance of probabilities, and depending on one’s view of BSV in general, the answer is “yes” — but that doesn’t mean you should start trading BSV right off the bat.
Consider that BSV is today the world’s fourth largest cryptocurrency by market cap and if its rival is Bitcoin itself, and not Bitcoin Cash, then a market cap of just 4% of Bitcoin’s suggests there is still some room for upward movement of BSV.
BSV also has a supply cap of 21 million, the same as Bitcoin, but unlike Bitcoin, already has 18 million already in circulation — which means that any buying pressure for BSV will likely see dramatic and large spikes.
Then there’s the issue of BSV-based derivatives — the utter lack of them.
Unlike Bitcoin, which has no shortage of derivatives, BSV was thrown out of several cryptocurrency exchanges and during that period, no one bothered to create any derivatives for BSV.
Derivatives such as futures and options allow traders to short BSV, but because BSV doesn’t have a market for derivatives, price movements for BSV translate directly on the SPOT market and manifest directly in price.
For example, a peek at the futures price of Bitcoin can give traders an inkling of what other traders think the future price of Bitcoin will be, but with no futures price guiding sentiment, BSV can literally become the product of FOMO (Fear Of Missing Out), leading to highly sentiment-driven pumps and just as rapid dumps if and when the market panics.
Sentiment trading is dangerous, because it’s virtually impossible to time the market.
However, historically, BSV has always seen strong levels of buy-up to support its price whenever it has dropped too low.
Some claim that it is Wright who is pouring his not insignificant resources to support the price of BSV, others argue that it is a grassroots initiative, but whichever school of thought one subscribes to, the volatility in and of itself provides trading opportunities.
BSV is in uncharted territory right now — it has never cost this much in dollar terms, ever.
Whether it’s a momentary pump, or part of a longer term uptrend is difficult to say, but the cryptocurrency industry as a whole provides some historical reference.
The ascent of any cryptocurrency has never followed a linear pattern.
Calling tops and bottoms is pseudo-science — traders can be guided by first principles, but sentiment can cause unforeseen swings.
BSV will likely face another round of strong resistance at US$400.
To be sure, there are not insignificant holders of BSV who will not sell at possibly any price — whether that number is significant enough to support BSV’s price is anyone’s guess.
And with the cloud of controversy over Craig Wright dissipated (somewhat) for now, traders can examine more closely whether or not the underlying technology powering BSV is sound (it is).
In the coming weeks, BSV will test US$400 and more likely than not, it will test it on several occasions.
A single pump beyond US$400, for now at least, seems improbable.
If US$400 is not breached for BSV, expect BSV to pull back to US$350 and then again at US$300, before settling around US$280.
The downside risk in the very short term is relatively high and the upside potential capped for now — because sentiment is hard to quantify and a trade of this sort does not avail itself to hedges.
So for traders (punters) looking to pour into BSV, I would suggest you wait.
It’s not clear as yet what caused this recent run-up in BSV and it’s even less clear if this run-up is sustainable.
Without the availability of hedging tools for BSV, a long-only position is fraught with risk and the risk-reward ratio remaining unbalanced.
Because trees do not grow to the sky, consider waiting for BSV prices to settle into a range before deciding on an entry point.
Disclaimer: I own BSV as well as other cryptocurrencies.
Patrick is an innovative entrepreneur and a lawyer passionate about cryptocurrencies and the business world. He is the CEO of Novum Global Technologies, a cryptocurrency quantitative trading firm. He understands the business concerns of founders and business people helping them to utilise the legal framework to structure their companies to take advantage of emerging technologies such as the blockchain in order to reach greater heights. His passion for travel, marketing and brand building has led him across careers and continents. He read law at the National University of Singapore and graduated with Honors in the Upper Division and joined one of Singapore’s top law firms, Allen & Gledhill where he was called to the Singapore Bar as an Advocate & Solicitor in 2005. He created Purer Skin, a skincare and inner beauty company which melds the traditional wisdom of ancient Asian ingredients such as Bird's Nest with modern technology. In 2010, his partner and himself successfully raised $589,000 from the National Research Foundation of Singapore under the Prime Minister’s Office. He has played a key role in the growth of Purer Skin from 11 retail points in Singapore to over 755 retail points in Singapore and 2 overseas in less than a year. He taught himself graphic design, coding, website design and video editing to create the Purer Skin brand and finished his training at a leading Digital Media Company.