Bitcoin cash surged above $700 today, passing a notable milestone amidst a two-day rally during which the price of the cryptocurrency more than doubled.
Heading into weekend trading sessions, bitcoin cash has emerged as the third-largest cryptocurrency by network value, behind bitcoin and ethereum. And while it might still be too early to compare bitcoin cash to these more established networks (there remain unanswered questions about its particular economics), traders are proving it might have staying power.
Overall, the development is the latest in a narrative that began when bitcoin cash split off from the main bitcoin blockchain earlier this month because a group of miners and developers moved to adopt software with new network rules that were incompatible with bitcoin.
The result: bitcoin "forked" into two distinct blockchains, each with their own freely-traded digital assets. But while bitcoin surged past $4,000 to set new all-time highs, bitcoin cash stayed largely stagnant this week – trading in the $300 range. Yet, at press time, bitcoin cash was trading around $750 per coin.
So what's driving these jumps? And will these drivers continue to propel price movements, both up and down, in the future?
Driver 1: New exchange volume
While both bitcoin and bitcoin cash share a transaction history, there's at least one major differential that changes their markets – bitcoin cash didn't inherent bitcoin's expansive global exchange network.
This means while bitcoin is widely available for trading across continents, only a few major players stepped up early to add Bitcoin Cash.
Still, signs suggest more exchanges could soon see a value in doing so. Case in point, the trade volume in bitcoin cash observed during the recent run was largely denominated in the South Korean won today.
Earlier this afternoon, about $1.2 billion of the $2 billion in total bitcoin cash trade volume, or around 56%, appeared to be transacted in won on just three South Korean exchanges – Bithumb, Coinone and Korbit – according to data from CoinMarketCap.
Such a strong regional showing could indicate pent up demand – but whether it's from sellers seeking to sell, or buyers looking to buy, that remains unclear.
Prior to the increase, though, bitcoin cash trading volume was relatively light earlier this week, and it increased roughly tenfold earlier this afternoon.
Driver 2: Miner mechanics
The value of cryptocurrencies is driven by technology and economics, and bitcoin cash is no exception.
So, just like with its nascent exchange network, it remained unclear how much infrastructure support bitcoin cash would inherit following the split. Remember, for a blockchain to be successful, it must attract miners willing to devote computing power to securing the ledger on which its users transact.
In this way, on August 1, bitcoin cash was at a disadvantage. But that may be changing, too.
At the time of the split, bitcoin cash had far fewer miners, and because of the messy mechanics of the split, it remained difficult to mine. With the price hovering around $300, many miners weren't earning as much as they could have on the other chain.
But, the network difficulty has been slowly decreasing since (the difficulty adjusts to the number of miners mining on the chain), and it's now set to decline further. This weekend, the mining difficulty of the bitcoin cash network is expected to decrease by an estimated 50%.
Many believe this will make the cryptocurrency easier to mine, and with the recent price upticks, profitable to mine.
What happens from there is anyone's guess – the exact incentives are still murky. If today is any indication, though, the narrative may just be getting interesting.