After dropping to a low of $1,836 this weekend, the bitcoin price is once again climbing back toward all-time highs.
According to CoinDesk’s Bitcoin Price Index, the price of bitcoin rebounded to $2,730 today, the highest value observed on the BPI since June 23 and just $300 off its all-time high of $3,025, set on June 11.
So, what’s driving traders?
Overall, analysts are reporting that the recovery is largely due to the improving outlook for bitcoin’s technology roadmap, spurred by the expected ‘lock in’ of a code upgrade called BIP 91 today.
The piece of code that will set the stage for the first part of the Segwit2x scaling proposal, BIP 91 could upgrade the bitcoin blockchain to support Segregated Witness (SegWit), thereby increasing the network’s transaction capacity.
At time of publication, miners need to continue to signal for BIP 91 for roughly 20 additional blocks in order to lock in the upgrade. At this point, BIP 91 will enter a “grace period” of 336 blocks, before activation.
Complexities escalate from there, as it remains possible SegWit might not be activated under certain scenarios owing to how miners might run the code.
Speculator’s delight
Still, the positive sentiment offered a break from the doom and gloom of the debate that has shrouded the market for weeks.
With bitcoin rising, prices were up similarly across the cryptocurrency markets, with all of the top 30 by market capitalization posting gains today. But as traders have a long history of positioning investments in relation to bitcoin scaling proposals, the run-up in price was perhaps not surprising to many.
Iqbal Gandham, managing director at social trading firm eToro, noted that much of the activity is likely due to positive sentiment.
He also noted how it might be somewhat divorced from any strong conviction of what might or might not occur.
“Segwit, block size increases and the various mechanisms by which to deliver this have been difficult to understand for traders, and they are at the point where they just want clarity and a clear direction,” he said. “We may now have one.”
In this way, Kevin Zhou, a trader and market analyst with crypto trading fund Galois Capital, credited the advancement of BIP 91 with the run-up in price.
In particular, he said, traders are responding to the decreasing likelihood that bitcoin could split into two competing assets (though this is still possible later this year), and the increase in capacity SegWit would bring.
“It’s not just reduced uncertainty over whether there will be a chain split, but also less uncertainty over how exchanges will handle a chain split and the issues that come with it (e.g. replay attacks, reorg risk, margin positions, etc.),” he said.
Split spectre remains
Still, while less possible, tensions in the scaling debate could simply go into hibernation, only to reemerge later this year.
With major miners threatening to fork off onto a separate blockchain should the block size not be raised, it remains possible this debate will lie dormant until fall, at which point, tensions could reemerge.
Under the Segwit2x proposal, a large group of startups and miners agreed to a 2 MB hard fork that would occur three months after Segwit is enacted.
Developers have largely sought to downplay the idea as risky and dangerous.
How aware the market is of this reality remains to be seen, though some sought to stress the short-term positivity and its impact.
“We still have to worry about whether the market will accept the ‘2x’ half of Segwit2x, but at least there likely won’t be an initial split for the SegWit half,” Zhou remarked.
Likewise, Arthur Hayes, CEO of bitcoin leveraged trading firm BitMEX, went so far as to predict bitcoin could once again test all-time highs should the network enact SegWit in the coming days.
“The reason why we didn’t surpass $3,000 earlier this summer was the specter of UASF [and a bitcoin split]. With that roadblock removed and Segwit activated, money will pour into the system,” he said.
Hayes concluded:
“Those who sat on the sidelines due to reservations about how bitcoin would scale now will rush back in with a vengeance.”
Bitcoin image via Shutterstock