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19th of January 2018

Economy



Bitcoin crashes as bitcoin cash rises

The price of bitcoin sharply retraced on Tuesday, collapsing more than 23 per cent and sending shocks through the exuberant ecosystem.

But rather than investors pulling their fiat currency out of cryptocurrency exchanges, traders point to a flow from bitcoin to its cousin bitcoin cash, which has more than doubled in value.   

While bitcoin's price fell, its cousin bitcoin cash more than doubled in value. While bitcoin's price fell, its cousin bitcoin cash more than doubled in value. Photo: Mark Lennihan

Coinbase, one of the world's largest cryptocurrency exchanges, announced on Tuesday that its 30 million customers would be able to transact in bitcoin cash.

But within minutes the website froze and Coinbase announced it was suspending all trade. 

Bitcoin cash was created as a "fork" of bitcoin in August – a process where the entire blockchain sitting behind bitcoin is duplicated – and has a larger blocksize, which allows it to complete faster and cheaper transactions

However, this development created a competing network and has stirred up rivalries between two factions of bitcoin developers, at odds over how the technology should scale. 

Following the news that bitcoin cash was open for trade, bitcoin's price plummeted by 15 per cent, from a high of about $US18,400 to a low of $US15,580, according to research site CoinDesk. By early afternoon on Wednesday it was trading at about $US16,170.

Meanwhile, the price of bitcoin cash skyrocketed, nearly doubling from about $US1850 on Tuesday to $US3500 on Wednesday afternoon. 

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Capitalisation steady

Despite reaching record highs this week, the cryptocurrency markets have not seen a broad wave of selling. The entire market capitalisation remains steady at about $US600 billion ($783 billion). 

Tuesday's sharp fall comes after co-founder of Bitcoin.com website and bitcoin cash advocate Emil Oldenburg announced he had offloaded his entire bitcoin holding, describing the cryptocurrency as "virtually unusable". 

"When I sold my bitcoin I had to pay $US50 and wait 12 hours for the transaction to go through because of this," Mr Oldenburg told Swedish website Breakit. "It's completely unreasonable."

Coinbase's blackout comes amid heavy scrutiny of cryptocurrency exchanges worldwide. Earlier on Wednesday, a South Korean bitcoin exchange called Youbit announced it plans to file for bankruptcy after 17 per cent of its crypto-assets were stolen. 

The hack was the second breach in less than eight months and Youbit has said all customers' assets will be marked down to 75 per cent of their value.

About $70 million worth of bitcoin was stolen this month from Slovenian mining service NiceHash and the large Taiwan-based exchange Bitfinex has admitted it is under constant cyber attack. 

Transaction delays

Bitcoin Cash's revival comes amid lengthy delay times on transactions and widespread concerns regarding security. As an explosion of mainstream interest has poured into cryptocurrencies, the blockchain is groaning under the weight of block verifications. 

Further, The Crypto Company, an Australian fintech firm based in California, has been suspended from trading by the US Securities and Exchange Commission.

The founder has recently become a paper billionaire on the back of bitcoin's stunning price rise. 

Crypto Co's stock price has jumped 5644 per cent so far this year and the SEC said it had temporarily suspended trading for two weeks to protect investors.

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