WASHINGTON – After soaring to new highs in August in part due to a technical update, Bitcoin prices are expected to get more volatile approaching the next update in November.
Bitcoin prices dipped below $4,000 on Tuesday, touching as low of $3,689, according to CoinDesk. Despite the drop, Bitcoin prices increased over 40 percent in August, hitting a record high of nearly $4,500 last Thursday.
One of the reasons behind the August price surge is the successful lock-in of Segregated Witness, or SegWit, essentially a bug fix that is intended to increase the capacity of the Bitcoin network. It will be fully activated later this week.
Litecoin, another digital currency, activated SegWit in May, and its price and its number of transactions have since doubled.
“I don’t see it’s strange for Bitcoin’s price to double because of SegWit,” said Xinxi Wang, a Litecoin Foundation director and the CEO of Coinut, a Singapore-based Bitcoin options exchange.
Samson Mow, chief strategy officer at Blockstream, a blockchain technologies provider, predicted Bitcoin’s price would continue to surge in the rest of 2017.
“With SegWit activating, I think we will see $6,000 before the end of the year,” Mow said.
The successful lock-in of the SegWit came after almost two years of the “Bitcoin civil war,” as some called it. Bitcoin blocks are limited to 1 megabyte, but demand now often surpassed the limit, which results in rising fees. To solve the congestion, some Bitcoin miners wanted to enlarge the block size, while core developers wanted to make the transactions more efficient by updating with SegWit.
The dispute came to a temporary end on Aug. 1 with a Bitcoin-blockchain split and the creation of Bitcoin Cash, a new cryptocurrency that’s separate from Bitcoin. Bitcoin Cash raises the block size to 8 megabytes and is currently traded at around $675, according to BitinfoCharts.
The rest of the Bitcoin community continued with the idea of SegWit and successfully locked in the update on the Bitcoin network.
The split was chaotic to the Bitcoin community, with many exchanges and wallets stopping Bitcoin deposits and withdrawals at the beginning of August. As equilibrium returned and prices steadily increased in the past two weeks, investors and users have become more concerned about the potential of a so-called SegWit2x proposal in a few months to split Bitcoin again just as the Bitcoin Cash has done.
SegWit2x, an update scheduled in November with the support of over 50 companies, is the second step of the SegWit update, and it will increase the block size to 2 megabytes. Abra, a Bitcoin wallet startup, has publicly supported the SegWit2x.
“We believe it’s the right compromise to move Bitcoin forward,” said Bill Barhydt, Abra’s founder and CEO. “SegWit2x is the reason why SegWit is activating in the first place.”
Barhydt said there might be some fear leading up to the November hard fork, but when people realize that their fear is unfounded, that might lead to a price spike.
However, Bitcoin Core developers, who defend the Bitcoin protocol including the 1 MB limit, said there is a lot of misrepresentation about SegWit2x – developers said the SegWit2x is not an upgrade but a replacement of the system – and it will create confusion and technical inconveniences to exchanges and wallets.
“There’s a battle going on right now for Bitcoin: Is it an open-course project, or is it a project controlled by big corporations?” Mow said. “It will harm the price because it will cause a lot of chaos … and it’s going to create a lot of market uncertainty.”