Bitcoin Exchanges, The King Makers or Has the Market Decided in Favor of 1x?

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With no central authority to decide what exactly is bitcoin, who decides? Some say the miners, some say the nodes, some say the developers, some say the market.

The probable truth is that all four do, and probably some more. But that’s letting ourselves get away far too easily from this complex questions which we can reword to ask the extent of influence of each constituency and how that changes at each stage.

Any upgrade begins with developers. That can be a very loose term because anyone could be a developer and propose some changes. The proposal is then discussed, either in hidden away places like IRC, or on github itself, or perhaps on the mailing list.

Discussions at the latter two, however, probably occur at late stages. Initially, the process is somewhat informal and occurs mostly on IRC for bitcoin.

Usually, developers agree. That usually suggests the matter is uncontroversial. Sometimes, very, very rarely, they fundamentally disagree, which usually means the matter isn’t really technical, but more holistic, requiring weighing of factors.

In these situations, from what we have seen, the matter goes to the public. At this stage, there are numerous deficiencies in process for bitcoin as far as we have seen.

Because while developers might argue and while the public may have formed a view, there isn’t an objective measure that has been employed.

A bitcoin holders vote appears to be the obvious answer, but it can be criticized by the losing fraction for being unrepresentative or manipulated or favoring the rich and so on.

Miners can be seen as delegates or representatives of holders. After all, they are in some ways the ultimate holders. But there are two problems.

Firstly, it isn’t that clear they are actually holders because their hardware depreciates quickly, thus incentivizing them to have more short term concerns.

Secondly, once a fork occurs and if there are two chains and currencies, miners tend to switch their hardware to whichever is more profitable even if they strongly disagree with the underpinnings of the more profitable coin.

However, before the split, as the most non-sylable aspect of the market, miners have considerable influence by deciding to provide security to one chain or the other, at least initially.

If their decision is overwhelming at above say 70% or so, the other chain would have to make mining related protocol changes which would mean they would be sacrificing security.

But before miners decide which one to support, exchanges in particular and businesses more widely have some considerable influence, perhaps even decisive in some cases, by deciding which chain is to retain the brand name and ticker.

There can be only one of those. So far, we have seen exchanges and businesses be in agreement regarding which one keeps the brand name in the two chain splits that have occurred for the two currencies.

It is unclear whether in practice we can really face a situation where some exchanges call one chain say BTC while others call the same chain B2X and another chain as BTC.

Even if we do experience such situation it would likely be very temporary for obvious reasons. As far as main businesses are concerned in any event.

That is probably because the market would quickly make a decision regarding the two currencies. Especially in bitcoin, which has quite a brutal difficulty adjustment algorithm where chain splits are concerned.

However, the market’s decision, as well as the miners’ movement between the two chains, might be quite influenced by which chain businesses and exchanges call BTC.

If they disagree, the price of both currencies is likely to be lower due to the added confusion and uncertainty, but it may be the case the chain with the majority of businesses that label it as BTC might retain the highest price. With the other businesses then eventually following if the market agrees with them.

1x futures on Bitfinex.

The market has spoken to some extent. At least on Bitfinex, where BT1, a futures market representing 1x, is currently trading at around $3,470 after reaching a high of $4,000.

The 1x futures are trading lower than BTC’s current price by around $1,000 and there may be plenty of holes to poke.

But it might also be a representative measure of the market’s position not just on merits, but also on further considerations, such as which one would retain the ticker.

The 2x futures market is far more liquid with a lot more action. It initially rose above 0.5 BTC, then reached a recent high of $1,800 twice, but now seems to have stabilized around $1,100.

2x futures market

We may therefore expect 2x to initially rise as high as 0.5 BTC, but whether it retains that level and rises to 1BTC or even more might depend on numerous factors.

Because although futures might be representative, there is an added dimension here of arbitrage with the actual BTC.

Thus the two futures appear to be almost identical in combination to the current price of BTC, when in an actual split we have seen them to be higher in both cases.

Therefore, it might not be too predictive, but it might perhaps give a rough, albeit slightly flawed, general indication of where the market currently stands.

Something which may change as facts change. If a big exchange, for example, said they are to list 2x or 1x as BTC, the two futures markets will probably adjust correspondingly.

Thus they may be a more correct indicator closer to the time of the fork, which is to occur around November 17th. Just over a month from now.

Until then, there is plenty of space for matters to develop as bitcoin heads to the final showdown regarding the blocksize and scalability.

 

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The design of the Bitfinex BT1/BT2 tokens are having an effect on their pricing and do not reflect a true Futures market. For example: if there is NO hard fork at all, BT1 Tokens retain their value and become BTC and BT2 Tokens go to zero value. This risk to S2X/BT2/B2X tokens is suppressing it’s price on Bitfinex. Exchange risk is also a factor.

A better design would have been for both Tokens to revert their partial values to BTC if there is no Hard Fork (the 3rd potential outcome).

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