Bitcoin's price climbed to a new record high of more than $8,000 Friday before falling precipitously to around $5,600. At the same time, bitcoin cash, the three-month-old cryptocurrency cousin of bitcoin, also quadrupled in value overnight.
Now, some analysts are wondering if the recent success of bitcoin cash indicates there are deeper rifts in the bitcoin community that may play out in different ways.
The past several weeks have been tumultuous for bitcoin. First, bitcoin developers, miners, and investors waited anxiously as an impending hard fork associated with the SegWit2x protocol approached.
Then, just days before the hard fork was to be finalized, the proponents of the split called the entire thing off, pointing to a desire for unity across the different groups with an interest in the future of the cryptocurrency. (See more: What Happens Now That the Bitcoin Hard Fork Was Canceled?)
Scaling Question at Heart of Conflict
The fundamental reason for the disputes among bitcoin developers, miners, and investors is the question of how to scale bitcoin in order to accommodate additional transactions. Those looking to improve the cryptocurrency's ability to handle additional transactions say Bitcoin's software is in need of an upgrade.
These proponents of hard forking generally believe the currency must be properly scaled with software updates if it is ever going to catch on in the mainstream payment world. There has already been one hard fork.
Three months ago, a hard fork resulted in the development of bitcoin cash. The fact that a second hard fork was planned, and that bitcoin cash has made gains while the original bitcoin faltered, points to an underlying conflict in the bitcoin community.
Bitcoin and Bitcoin Cash at Cross Purposes?
A recent article in the MIT Technology Review suggests that "under certain circumstances [bitcoin cash] can put a serious dent in bitcoin's value."
It's difficult to say whether the recent downturn in bitcoin's price was correlated with the surge in bitcoin cash value. Nonetheless, it is a distinct possibility that investors moved toward the newer iteration of the leading cryptocurrency in response to the news of the hard fork's cancellation. If so, and if bitcoin cash and bitcoin are competing for the same pool of investor assets, it's possible the two digital currencies may impede each other's price gains.
There has already been substantial talk in the cryptocurrency space of a future when another digital currency (like ethereum, for example) may permanently take over the largest portion of market capitalization from bitcoin. This has not occurred yet, but it could be hastened if bitcoin cash and potential future hard fork-generated bitcoin spinoffs chip away at the original currency's investor interest. (See more: "The Flippening": Will Ethereum Take Bitcoin's Place?)