Story by: Charles Bovaird
Bitcoin cash has surged this year, doubling in price and sharply outperforming its big brother bitcoin.
The altcoin (a digital currency besides bitcoin) rallied more than 105% between the start of 2019 ($160.53) and its annual high reached April 3 ($329.85), CoinDesk price data showed.
Bitcoin, on the other hand, has experienced less impressive gains, climbing roughly 45% between its price on January 1 ($3,690.19) and its 2019 high ($5,343.25), additional CoinDesk price figures reveal.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
When explaining the differing performance of these digital currencies, analysts pointed to several key variables.
For starters, the broader digital currency market has attracted significant inflows recently, rising roughly 45% in value year-to-date (YTD), according to CoinMarketCap.
Charles Hayter, cofounder and CEO of digital currency data platform CryptoCompare, pointed to this development, noting that “a rising tide lifts all boats.”
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When digital assets draw the interest of investors, “the smaller cap cryptos can face buying pressure that moves them more than the majors,” he stated.
Since it serves as the industry’s reserve currency, bitcoin can experience notable inflows when investors flock to the space, a development that can bolster altcoin prices through a so-called “spillover effect.”
Several market observers used this effect to explain bitcoin cash’s recent gains, claiming that the altcoin was benefiting from such inflows.
Matters Of Scale
Another factor that analysts have singled out as helping explain the differing performance of bitcoin and bitcoin cash is the sharp disparities in their total market value.
Bitcoin Cash’s market capitalization (market cap) is far smaller, standing at roughly $5.5 billion at the time of this writing, compared to $92.3 billion for bitcoin, additional CoinDesk figures show.
Because of its smaller market value, any gains in bitcoin cash are “magnified in comparison to Bitcoin” should the altcoin benefit from a spillover effect, noted Dipasquale.
In addition to having a far smaller size, bitcoin cash suffers from low liquidity, noted Jeff Dorman, chief investment officer of asset manager Arca.
The altcoin has a “much thinner order book, and therefore a much higher probability to move violently when the market moves violently,” he stated.
Lower Barrier To Entry
Bitcoin cash might also benefit from having a lower price per unit than bitcoin, allowing investors to purchase an entire unit of the altcoin with far less capital than would be needed to buy a single bitcoin.
Dipasquale spoke to this development, stating that:
“Given how Bitcoin is considerably more expensive than Bitcoin Cash, a lot of small investors who enter the market during an uptrend tend to go for Bitcoin Cash, since they generally prefer to own a complete coin (within their budget) rather than a fraction of a coin.”
James Putra, head of product strategy at TradeStation Crypto, offered a similar point of view:
“When compared to Bitcoin, lower priced coins often appeal to investors that are hunting for perceived bargains.”
Another potential explanation is the maturity of bitcoin futures relative to similar contracts available for bitcoin cash.
“Because bitcoin futures can be legally bought and sold through the CME, that makes bitcoin more mature as an investment vehicle, and less speculative,” said John Hargrave, publisher of Bitcoin Market Journal.
He noted that bitcoin cash futures, while available through Kraken subsidiary Crypto Facilities, are “less developed than bitcoin futures.”
“Futures help reduce volatility, by giving investors a way to predict the future price,” said Hargrave.
“Because the future is more ‘predicted,’ you might say, the future becomes more ‘predictable,'” he added.
Hargrave said that “because futures help reduce volatility, they could be helping bitcoin see a more ‘mild rise,’ while BCH is seeing a ‘wild ride.'”
Disclosure: I own some bitcoin, bitcoin cash and ether.
Original story: http://tinyurl.com/y5hqls2e