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A Bitcoin Hard Fork Means a Free Lunch for Investors

The last time Bitcoin did a hard fork, investors made easy money. It’s about to happen again—tomorrow in fact.

On August 1st, Bitcoin split into two coins, Bitcoin and Bitcoin Cash. The day before, Bitcoin was worth $2875 and the day after the split, it was worth $2735. And if you had parked your Bitcoin in a wallet or exchange that supported the hard fork, you would have received one Bitcoin Cash coin for every Bitcoin.

The day after the hard fork, Bitcoin Cash was trading for $750.  A month later, it was trading for more than $600 (today’s price is $357).

Think of Bitcoin cash as a dividend that paid out 27%. And we are doing it again on October 25th according to Bitcoin Gold’s website.

Before we go any further, we should probably try to explain what is a hard fork.

A hard fork is a cash grab.

Okay, that’s not the technical definition. A hard fork occurs when the code base of Bitcoin splits in two like an amoeba. How does a split occur in the Bitcoin code base? It occurs when somebody (anybody) takes the existing Bitcoin code base and makes changes to it, thus creating two code bases, the original and the new code base.

Whenever this happens (and it happens a LOT) the miners vote on whether to accept the code base or not. If more than 80-90% of the miner accept the code changes, then the Bitcoin code base, the “core” allows the code to be merged in and there is no split.

However, things get messy if the vote is anywhere from 30-60%. That means a certain percentage of the miners are determined to split off from the “core.” That’s what happened with Bitcoin Cash. You get a split.

Think of the Bitcoin code like a living organism with its own DNA. Now think of code changes to the code base like a virus entering the cell and updating the DNA. When that happens, the amoeba splits in two.

But the amoeba can’t survive without the help of the miners. In the upcoming code split, a certain percentage of the miners will support the original code base (Bitcoin Core) and the rest will support the new code base which will be called Bitcoin Gold.

Why is this happening? Simple, it’s a cash grab. Because miners want to make some money (or even more money then they are making now).

Look at Bitcoin cash: It’s market value is $5.5 billion USD. That was created out of NOTHING, it was a FREE LUNCH.

Oh sure, there is a lot of posturing about the new changes making Bitcoin better. And maybe there just a clash of egos between smart people that is causing them to not agree.

But money is money is money and so far, hard forks are making money for everybody. So why not?

So of course, there will be more hard forks to come, at least until the market decides to punish the forkers or the Bitcoin community in general.

But Until Then Here is What You Do to Profit.

  1. Make sure your Bitcoin is stored at an exchange that promises to support the fork. Bitfinex and Kraken supported the last fork but doublecheck all the same. Not all exchanges credited their clients with Bitcoin cash with the last fork, but you can bet they kept it all to themselves. Coinbase has promised they will support Bitcoin gold.
  2. If you don’t trust ANY exchange (and a lot of people don’t), load your Bitcoin onto a desktop wallet and save your private key. Then wait for a wallet to come out that supports both coins and load your Bitcoin into the wallet with your private key. Watch out for scam wallets i.e. wallets that will steal the Bitcoin Gold from you.

For myself, in addition to the points above, I will be opening up a short position in Bitcoin on the futures exchanges Bitmex, the day before the fork. I will do this for two reasons:

  1. On the off-chance that fork turns into a Gong Show and the price of Bitcoin plunges, I will at least have a bit of a hedge.
  2. I expect Bitcoin to flow out of the Bitmex exchange because Bitmex mostly likely will not support the forke. credit clients with Bitcoin gold. So I expect the futures contracts XBTUSD and XBTZ17 to start to fall 24 hours before the fork, as clients transfer Bitcoin to other wallets.

Of course, I could be completely wrong about #2, which is why I am not planning to bet the farm.  For the last few days, I have been shorting altcoins like Ethereum as it follows that cryptocurrency investors are moving out of altcoins and into Bitcoin.

Conclusion

It’s not baked in the cake that Bitcoin Gold will be a roaring success.

For example, although the Bitcoin Gold organization will announce the first “official” block of Bitcoin Gold on October 25th, the coin Bitcoin Gold will not be officially released until sometime in November, after exhaustive testing against “replay attacks” (hackers that get a hold of your private keys on one blockchain and use it on another).

So you will get the extra Bitcoin Gold in your exchange account or wallet come October 26th, but won’t able to spend it until November.

But it’s still a free lunch.

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