Are Bitcoin early adopters moving to other crypto-currencies?

Well, I know I am. But before I tackle this subject I need to first explain the two major technologies being pushing in Bitcoin. Segwit & Bitcoin Unlimited.

Segwit:

Segwit stands for Segregated Witness. The purpose of SegWit is to squeeze more transactions into each block on the blockchain by (you guessed it) - Segregating the witness data and storing it elsewhere. Segwit has a huge team behind it and has been in the works for around 2 years now. It is widely supported by Bitcoin users, though the miners are still reluctant to show their full support, since they earn more in fees by leaving Bitcoin as it is now.

Bitcoin Unlimited:

Unlimited is a relatively new challenger to Segwit in the block-size debate. Despite having less developers the technology seems more popular with miners recently overtaking Segwit hitting 30%+ approval. This week a bug was found in the unlimited code that saw support drop to 20% within hours. Many critics called out that supporters of Unlimited are supporting a potentially broken technology that has not yet been tested enough to be pushed into a live enviornment where a potential bug could cost the currency billions.

My view

So my view on this lies a little more towards the middle of both camps. I joined the Bitcoin hype back in 2013 before the price had hit $50. I was excited about the technology for one reason above all others. A borderless, fast, cheap payment system that cares not about class, creed, race or nationality, but is open to all and censorship resistant.

With the blocks consistently hitting up against he 1MB block size limit causing transaction fees to rise above $1 and confirmations to sometimes take days I am now extremely concerned about the future I saw in Bitcoin when joining. Many will point out that Bitcoin is more than that, it acts as a store of value, a hedge against inflation and corrupt governments who over-tax or limit their citizens financial options. They will also talk about Bitcoins utility as as service layer of infrastructure, allowing for smart contracts and applications to be built on top of it.

The way I see it, if I want to invest in Blockchain technology as a decentralized database/computer - Ethereum does it better than Bitcoin.

If I want a crypto-currency resistant to censorship or governments I believe both Dash and Monero offer a better solution than Bitcoin. Even on speed Bitcoin loses vs many rival currencies.

So what is holding the price up just below an all-time-high?

The network effect? Hope? Speculation? These are the only 3 reasons I can think of. But let's not down-play them.

Bitcoin is now known globally, many people do not understand it, support it, like it or even know what it is. But they know the name. Bitcoin has millions of users now most of whom have been relentlessly trying to explain what it is to friends, family and colleagues. Much like the smart-phone battle in the 2000's the system that gets a head start is likely to remain on top for a long time, Apple's IOS and Google's Android have fended off the likes of Amazon, Mozilla, Windows Phone, Blackberry and countless other mobile operating systems over the years not because they were better, but because they were first. While the network effect should not be under-estimated in it's ability to keep a tech growing rapidly we have plenty of reminders from the growth of the internet that prove that they can and will be surpassed if they fail to grow and innovate quickly enough. Myspace is a good example of this.

What do I mean by hope? Well, hope is simple, 99.9% of Bitcoin users are not actively working on anything surrounding the protocol, they aren't even miners or app developers. But most of them, again such as myself do understand the basics of what is going on. They are placing their hopes and trust in technologies like Segwit and Unlimited to solve the problems Bitcoin faces and allow the currency to continue to grow and innovate. But given how long this current debate has been taking place, I for one am beginning to lose some hope.

Finally there's speculation. Bitcoin is much more accessible as an investment than other crypto-currencies. CFD's, online exchanges, peer-2-peer exchanges, bitcoin ATM's, even accepting it as payment, it's simply easier to get your hands on Bitcoin than it's rivals, and many investors are taking advantage of this by speculating on it. Gold's worth is made up almost entirely by it's reputation as an investment rather than it's practical uses, so even if Bitcoin continues to struggle on scaling it's reputation as a store of value could already be so strong that it will continue growing regardless.

So, is money moving out of Bitcoin and into other crypto-currencies?

The short answer is yes, many of my friends and community members I've known for years have began to move their Bitcoin into other strong crypto's such as Dash, Ethereum and Monero. While Bitcoin has been struggling to stay above $1000 for the last few months, Dash, Ethereum and Monero have seen gains of well over 100%, 300% in some cases. I too am among the early adopters diversifying my portfolio.

Even if Bitcoin pushes ahead with a fix to the current scale-ability problem, a hard fork comes with dangers, Ethereum Classic still survives to this day as an off-shoot of Ethereum following theDao fork. I aim to split my funds 5% Dash, 5% Monero, 45% Ethereum and 45% Bitcoin over the coming weeks. To be clear I do not believe Bitcoin is dying, but as the value of my investment has grown i feel it is now unsafe to keep my eggs in the same basket now.

So what are my price predictions?

My usual disclosures that I am not a financial adviser apply, only invest what you can afford to lose and all that stuff, but here are my thoughts.

Bitcoin - Bitcoin will sink back below $1000 within the next 2 months, possibly as early as a week from now. I believe it is likely to stabilise around the $700-900 level until a solution the the block-size debate is found.

Ethereum - Ethereum is likely the most over-valued of Bitcoins rivals now, because like Bitcoin it has the advantage of being bigger than the rest re-enforcing the belief that it is trustworthy to investors. That being said I also believe that Ethereum has the biggest long-term potential of all crypto-currencies currently available. The price is likely to dip back to the low $30's within the coming months, but could easily hit $70 by the end of the year if they continue development at this blistering pace.

Dash - Dash is tricky, the ideas behind it are solid, supporting the developers via the Treasury, supporting a high node count as well as miners. But it's so young that it can be easily manipulated, especially by those who got in early, some of whom control a staggering percentage of the total market cap. I think the current price of $100 is extremely high when comparing with Monero who are competing for a similar product, but it is difficult to know for sure which will win in their head-to-head fight, which is why I suggest backing both. I believe the price will is likely to dip before recovering to a similar level during the next few months.

Monero - Undervalued, I think this is a good price and expect it to increase by 20-50% during the same time-frame as the crypto's above.

I hope everyone found this valuable, I'm hoping to make this blog a slightly more regular thing, with a mixture of dedicated eToro weekly trading updates and longer in-depth thoughts on my trading such as the post you've just read.

Comments, questions and feedback are welcome!