Bitcoin has been surging in recent months, with a sevenfold increase in value since the start of the year that led to many warnings of a bubble.
It reached a record high of $7,888 on Wednesday after a planned software upgrade that could have split the cryptocurrency in a so-called “fork” was suspended.
It quickly retreated, falling to as low as $6,718 on Friday. It later recovered to about $6,880.
“Bitcoin is all ups and downs,” said Thomas Bertani, chief executive of Eidoo, a cryptocurrency wallet provider. “The market realized that the price rise was an over-reaching, so people started selling… [and] there are many long and short positions that amplify price movements.”
As bitcoin tumbled, Bitcoin Cash, which was generated from another software split on August 1, surged, trading up as much as 35 percent on the day to around $850, according to industry website Coinmarketcap.
Bitcoin Cash’s transactions are processed in so-called “blocks” that are larger in capacity than bitcoin’s. They can in theory allow for more transactions to be processed at any given time, making transaction fees cheaper.
The fork that had been planned, known as “SegWit2x”, had been intended to increase the capacity of the blocks, which could have reduced fees for bitcoin transactions.
“The delay to Segwit2x has damaged confidence among bitcoin investors concerning the much-needed resolution to speed up bitcoin’s slow processing speed,” Joshua Raymond, a director at the foreign-exchange and CFD broker XTB, was quoted as saying to the Business Insider.
“Confidence on transaction speed in bitcoin has deteriorated significantly in recent months. As Bitcoin Cash enjoys much faster transaction speeds, we have started to see a recycling of positions out of bitcoin into Bitcoin Cash as a consequence,” Raymond said.
Any investors who see bitcoin more as a currency than a store of value might be choosing to buy into Bitcoin Cash now, Bertani said.
“People who had been supporting Segwit2x could as an alternative move to Bitcoin Cash,” he said. “There are good reasons to believe that Bitcoin Cash could be an alternative for people who believe that low fees on bitcoin transactions are needed.”