A Data-Centric Introduction to Bitcoin Cash

Bitcoin Cash(BCH) is one of the most interesting and yet controversial projects in the cryptocurrency space. Born out of an irreconcilable differences between core maintainers of the Bitcoin project, Bitcoin Cash prioritized the capacity of the network over some of its security safeguards. Bitcoin Cash quickly rose as one of the most important cryptocurrencies in the market but remains largely misunderstood by investors. Recently, we added support for Bitcoin Cash to the IntoTheBlock Beta platform and I thought it would be a good idea to highlight some key data points that illustrate the behavior of Bitcoin Cash.

A History of Forks

Bitcoin Cash was created in August 2017 as a fork of the core Bitcoin network. The purpose of the fork was to increase the block size of the network from 1MB to 8MB. A portion of the Bitcoin community believes that the small block size limits the possibility of denial-of-service(DDOS) attacks and other security vulnerabilities. However, small block sizes also mean long transaction processing times which limits the applicability of Bitcoin in many real world scenarios. In 2017, the Bitcoin community proposed two possible solutions to address the block size issue: Bitcoin Unlimited and Segregated Witness (SegWit).

The Bitcoin Unlimited approach would remove the limitations on block size altogether. Miners would be allowed to process blocks of any size as long as they have the capacity to do so. Obviously, the potential of mining fees skyrocketing in the Bitcoin Unlimited approach represented a concern for the community. The SegWitz alternative proposed moving some of the storage requirements off-chain while also increasing the block size of the network. A version of this approach called SegWit2x was implemented which increased the block size from 1MB to 2MB which many people saw as a temporary solution at best.

In the summer of 2017, former Facebook engineer Amaury Séchet proposed an upgrade to the Bitcoin network that would increase the block size from 1MB to 8MB. That change deviated from the principles of the SegWit2x protocol and required a hard fork which was implemented on August 2017 marking the birth of Bitcoin Cash.

The history of Bitcoin Cash appear to repeat itself in November 2018 when the community split in two based on two proposed updates to the protocol:

Canonical Transaction Ordering (CTOR): An update which would require transactions in each block to be included in a specific order.

OP_CHECKDATASIG: An opcode that would provide more flexibility to the BCH scripting language, enabling oracles and atomic swaps with other chains. The goal was to introduce non-cash transactions that would bring a level of smart-contract functionality to Bitcoin Cash.

A group within the Bitcoin Cash community led by Craig Wright and Calvin Ayre were opposed to the updates and started a very aggressive hash war to try to prevent its implementation. The result was another fork on the Bitcoin Cash network that produce the Bitcoin Satoshi Vision(SV) cryptocurrency (which will be the subject of a future post).

As you can see, the history of Bitcoin Cash has been marked by tumultuous events. Despite that, Bitcoin Cash remains one of the most important assets in the cryptocurrency ecosystem and one that has proven to be incredibly resilient to adverse market events. Analyzing the Bitcoin Cash blockchain reveal super interesting patterns about the behavior of this crypto-asset.

What Data Tells US About Bitcoin Cash

With a market cap surrounding the $6 billion, Bitcoin Cash is one of the most relevant crypto assets in the market. However, most of the analyses about the behavior of Bitcoin Cash remain relatively subjective based on assumptions and not correlated with real data. Let’s provide some data points that might surprise you.

Over 14.5 million addresses received Bitcoin Cash and over 88.5% of its investors are profitable.

IntoTheBlock’s In-Out the Money analysis looks at statistical distributions of investors in the network based on their financial position. The first cluster to the left indicates the original BCH holders while the clusters in green and red represent groups of in-the-money and out-of-the-money investors respectively.

The next big price movements of BCH would have to break through $280 or $366

IntoTheBlock’s Break-Even analysis factors in investor’s realized gains and group them by the predicted break-even price on their investment. The following figure indicates that the cluster closest to the current price has a break-even target of $366.

Large transactions in the BCH follow an interesting symmetric pattern

Large transactions are typically an indicator of large money movements which could signal future large trades. IntoTheBlock’s Large Transaction analysis looks at on-chain transactions over $100,000.00. Look at the symmetry of the movements.

BCH is not as correlated with Bitcoin as people think

It is common believe that there is a strong correlation between Bitcoin and BCH. After all, the networks are very similar. IntoTheBlock’s BTC Correlation analysis evaluates the correlation between a given asset at Bitcoin. As you can see, the 30 and 60 day analysis doesn’t show a very predictable picture.

The BCH Network is not growing very fast but the increase in activity is very regular

IntoTheBlock’s network growth analysis looks compares the number of active addresses in the network with the number of new addresses as well as those whose balance goes to zero any given day. As you can see, BCH sees as many new addresses coming into the network as those leaving but the sparks in activity look very predictable.

BCH is very well distributed globally

IntoTheBlock’s East-West Analysis looks at transactions that happen in Asia versus the rest of the world. In the case of BCH, the distribution looks very even which is a sign of global adoption.

The number of long-term BCH investors remains very steady

The number of long-term investors is often a sign of bullishness on a specific asset. IntoTheBlock’s HODLR Analysis looks at investors that hold their positions for over one year. In the case of BCH that number has remained very stable.

New investors regularly come into BCH but not very regularly

New investors typically fueled price rallies. In the case of BCH, IntoTheBlock’s Traders Analysis shows that the number of new investors was growing from March to May and then started decreasing slowly.

These are just some of the indicators about BCH that can be extracted by analyzing the on-chain behavior of Bitcoin Cash. Some of them reinforce popular beliefs while others are definitely surprising.

Disclosure: The Author is the CTO at Into The Block.