In the last month, few other cryptocurrencies have surged as much as Bitcoin Cash (BCH -0.73%). After a lackluster start to 2023, things changed in June and so far this year it's up more than 195%.
However, despite the short-term gains, Bitcoin Cash investors should exercise extreme caution and keep their hopes for a continued run in check. By taking a closer look at the reasons behind Bitcoin Cash's recent momentum and its position relative to its predecessor, Bitcoin (BTC -1.97%), it becomes clear that there are better options for your portfolio.
The big news
On June 15, a new crypto exchange called EDX made its debut, setting itself apart from popular exchanges like Coinbase Global and Binance due to its non-custodial services. Adding to the uniqueness of EDX is the backing it received from notable names on Wall Street, including Charles Schwab and Fidelity, among others.
Out of the four cryptocurrencies permitted for trading on EDX, Bitcoin Cash is one of them, alongside Bitcoin, Ethereum, and Litecoin. The selection of these cryptocurrencies was a deliberate move by EDX to avoid regulatory scrutiny, as these cryptos are considered among the most decentralized and, therefore, not classified as securities under Securities and Exchange Commission (SEC) regulations.
Consequently, when this news broke, Bitcoin Cash surged as traders perceived it to have gained an endorsement from Wall Street and recognized it as a truly decentralized asset. While this may seem like bullish news, it fails to capture the full picture of Bitcoin Cash's bleak future.
A little context
In 2017, a group of miners and developers proposed changing the Bitcoin code to allow for larger blocks, with the aim of facilitating faster transactions. However, this proposal faced resistance from the broader Bitcoin community. As a result, developers decided to hard fork the Bitcoin blockchain, thereby creating a separate cryptocurrency known as Bitcoin Cash that included larger block sizes.
At its inception, Bitcoin Cash gained traction and reached the top 10 cryptocurrencies by market value. However, as time went on, the novelty of Bitcoin Cash wore off, and it began to lose its market appeal as the realization that Bitcoin could meet the needs of users in its original form solidified.
The clear leader
Some of the key reasons Bitcoin remains a superior investment compared to Bitcoin Cash lie in the current developments within the Bitcoin ecosystem and its unparalleled levels of decentralization and security.
While Bitcoin Cash emphasizes larger block sizes and faster transaction speeds, Bitcoin continues to make significant strides in addressing scalability issues. Layered solutions like the Lightning Network, for example, are helping Bitcoin to become more efficient by enabling instant transactions through off-chain payment channels, all while maintaining the security and decentralization of the Bitcoin main chain. Furthermore, Bitcoin remains orders of magnitude more decentralized and secure, as its slower block times and smaller block sizes keep the costs to run a node and participate in the network to a minimum.
When it comes down to comparing price appreciation between the two, it becomes evident that Bitcoin has consistently outperformed Bitcoin Cash over time. The value of Bitcoin Cash relative to Bitcoin has shown a downward trend, indicating a lack of long-term growth and inability to keep pace with its predecessor.
Image source: TradingView.
While Bitcoin Cash may have experienced a temporary surge due to its listing on the EDX crypto exchange and the perceived endorsement from Wall Street, it is important to approach such developments with caution. The fundamental strengths of Bitcoin, including its robust infrastructure, widespread adoption, and established reputation, make it the more reliable and secure investment option.
Eventually momentum behind Bitcoin Cash will likely fade, just as it has before. In preparation for this reality, investors are better off prioritizing the original and proven cryptocurrency for a more secure and rewarding investment strategy.
