Bitcoin soars to record as buyers look beyond miners' split

The cryptocurrency is putting the scaling debate behind it. Photo / AP

Bitcoin extended gains to a record as the cryptocurrency makes strides in putting the scaling debate behind it.

The digital currency jumped as much as 21 per cent to an unprecedented US$3,423.37 ($4,653.24), even after bitcoin's division last week. The debate has revolved around how to upgrade its underlying technology. Most of the bitcoin ecosystem supports a solution called SegWit2x, while those backing a different scaling mechanism called Bitcoin Cash split into a different blockchain last week.

"The miner-orchestrated hard fork has had limited traction and will not impact the price or future development of bitcoin," said Aurelien Menant, chief executive officer of Gatecoin, a cryptocurrency exchange in Hong Kong, referring to the split. "The activation of SegWit is a significant milestone in bitcoin's technological evolution."

At the heart of the dispute is an issue that has dogged bitcoin's development: as its popularity grew, transactions slowed because of a cap on the amount of data processed by the blockchain. Under SegWit2x, some of that data will be moved off the main network while block sizes will be doubled to 2 megabytes in November -- a quarter of that for Bitcoin Cash. While the first step of SegWit2x has been locked in and the technology will probably be adopted at some point in August, infighting could disrupt the transition.

The price of Bitcoin Cash has plummeted 62 per cent from a record high reached last week to US$272, bolstering the appeal of its older cousin, CoinMarketCap data show. For now, Bitcoin Cash still pales in comparison to the original asset: the former has a capitalization of US$4 billion, compared with the latter's US$53b, according to CoinMarketCap.

"On a market cap basis, the price rise in bitcoin very closely mirrors the decline in Bitcoin Cash, indicating that investors are selling their Bitcoin Cash for Bitcoin," said Matthew Newton, market analyst at trading platform eToro. "Additionally, investors that preferred to wait out the hard fork last week are now moving back in."

Reports, including an article in cryptocurrency news platform Cointelegraph, point to price manipulation in bitcoin to explain the jump in prices. The reports say a trader with deep pockets is signaling large orders without following through to move prices, a practice known as spoofing.

Newton at eToro says this is unlikely to be the main cause behind the move as the practice is well known to traders so they're sell susceptible to it.

While the mechanism proposed by SegWit of moving some of the operations outside of the main network should be implemented in the following days, there could still be some bumps down the road, Menant said.

"The scaling debate is not over yet," Menant added. "The promised 2 MB block size increase due in November in accordance with the SegWit2x agreement may still be rejected by certain stakeholders."