Is the Bitcoin Fork to Blame for the August Selloff? – The Basics about Cryptocurrency

A few weeks back, the bitcoin network was subjected to a hard fork wherein two different versions of the software have been running. For developers Andresen and Hearn, this could allow the system to make a decision based on consensus when it comes to the bitcoin block size debate.

Recall that developers and other bitcoin stakeholders have had opposing views on the need to increase the block size limit from 1MB to 8MB, possibly allowing the network to handle more transactions at a time and to cut down the time it takes for a transaction to be processed. This led to the creation of Bitcoin XT, a newer version from the Bitcoin Core software.

Impact of Bitcoin Fork on Prices

Naysayers think that subjecting the system to a hard fork could create more problems, as this would result to two versions of the blockchain being recorded. With that, it might be possible to double-spend a unit of bitcoin on one system or the other.

Because of these potential issues, some investors probably lost faith in the system, leading to a massive liquidation of bitcoin holdings last month. Price dropped from around $260 at the start of August to $200 during the third week, spurring roughly a 20% decline in cryptocurrency investments then.

Of course other financial issues were also in play, namely the Chinese central bank’s yuan devaluation and China’s massive equity slump that started in July. This probably spurred a period of risk aversion, preventing traders from buying up riskier assets such as bitcoin. In addition, this may have also spurred a flight to safety, trading high-risk holdings for safe-haven ones like the US dollar or gold.

Nonetheless, this brought the issue of consensus-based decision-making under the spotlight, leading some to question whether this is still the best way to approach issues as the bitcoin network continues to grow.