The Risks and Rewards of “Being in BitCoin For the Fork”

At block 494,784 (estimated to occur Nov. 16) Bitcoin will fork in two. Bitcoin holders will get 1 Bitcoin Segwit2x for every Bitcoin they own. That is a big reward, but there are risks.

In as simple terms as possible, here is a quick list of risks and rewards of being in Bitcoin for the Segwit2x fork (this generally applies to all hard forks with a few exceptions):

RISK: Segwit2x is controversial and is being built to replace Bitcoin. About half the community or more doesn’t approve of Segwit2x (including the Bitcoin Core team), the other half does. Things could get messy, having the Core team not be on board is not a good thing.

REWARD: If Bitcoin and Bitcoin Segwit2x both end up with any sort of substantial value after the fork (like Ethereum and Ethereum classic, or even like Bitcoin and Bitcoin Cash)… then the clearest and most obvious reward is “free coins… with actual value on the market!”

RISK: Realistically Bitcoin’s price could go down after the fork. The last fork, the Bitcoin Gold fork, saw a sell-off right after the snapshot block. This essentially left zero wiggle room for those wanting to sell after the fork. The price recovered and then made gains shortly after, but there is no promise that this will happen with the Segwit2x fork.

RISK: Timing a good buy-in point for Bitcoin prior the fork is not easy. Past forks saw Bitcoin’s price fluctuate by substantial amounts up until moments before the fork. Buying early isn’t always the right move, but waiting until the last minute obviously limits your options.

REWARD: If either Bitcoin or Bitcoin Segwit2x becomes the dominate coin, then you want to be in both before the fork to avoid having to pick the right horse.

RISK: If you buy Bitcoin after the fork, or if you sell the wrong Bitcoin after the fork, you could end up holding a coin in its death throes. Buying after the fork and selling after the fork are both risky ventures until after the dust settles.

RISK: What if Bitcoin Cash becomes the dominate Bitcoin? Probably won’t happen, but imagine bag holding two different versions of Bitcoin after the fork as the price of Bitcoin and Segwit2x go down and Bitcoin Cash goes up. That nightmare probably won’t happen, but it could. Ethereum ended up doing better than the original Ethereum classic. Anything is possible.

RISK: Imagine holding Bitcoin, Bitcoin Segwit2x, Bitcoin Gold, and Bitcoin Cash and having only one retain value. This isn’t great, but it is really nasty if you miss the associated forks and bought each directly. With this in mind, being in for all the forks is generally a good idea. You may take a short term hit as Bitcoin corrects after the fork… but you won’t have to buy as many of a given coin later on the open market.

REWARD: Imagine holding Bitcoin, Bitcoin Segwit2x, Bitcoin Gold, and Bitcoin Cash and they all retain value. GREAT! This is actually a fairly likely case (that is one coin retains the highest value, but all others retain respectable values that made them worth being in the fork for).

RISK: If you aren’t in direct ownership of your private keys, then you have to rely on another entity delivering your Segwit2x. This could result in a lag and thus result in you missing a chance to sell Segwit2x at a high price, or that lag could save you from doing something stupid. We all trust our most trusted exchanges… but if they drop the ball, then it will hurt us. Not holding your private keys directly is a risk in other words.

RISK: What if Ether, Ripple, Litecoin, NEM, NEO, etc (AKA top alts) all skyrocket after the fork (after dipping hard right before it) and meanwhile Bitcoin spins into chaos? That could result in you holding the Bitcoin bag and missing the next great rally in alts.

RISK: Some exchanges/brokers, like Coinbase, have special rules for the fork. Coinbase will shut down Bitcoin trading for 48 hours surrounding the fork. There is a risk that something substantial happens in this time (a big price increase or decrease in one or more Bitcoins). Having limits on what actions you can take (as noted above) can be a risk.

ONE SOLUTION: The simplest strategy is buy Bitcoin and hold. However, a more nuanced conservative pre- and post-fork strategy is this: Take a portion of your funds and dollar cost average into Bitcoin before the fork (making sure you are holding your private keys or following the directions of the wallet exchange you are using… which may require you holding BTC at least 24 hours before the fork). Treat this as money you could lose (but almost certainly won’t as long as crypto stays around) over time. Put some funds aside to buy the dip in alt coins before the fork (any of the top 10, including Bitcoin Cash, Litecoin, and Ether). You will diminish gains in any one place, but you won’t miss any big opportunities in Bitcoins or Alts. After the fork consider either selling everything (or a portion of all coins) high, or holding until the dust settles. Don’t get in a situation where you hold the wrong version of Bitcoin and not the right one (thus, hold all of them… even if you have to hold a small portion of your portfolio into the ground). Essentially, the solution I offered is “hedge and diversify.” You’ll limit the gains you can make, but you’ll protect against backing the wrong horse before and after the fork. That is one solution, you of course have to do your own research and make your own choices.

TIP: One simple way to keep track of what block we are at is with blockexplorer.com. A block is mined roughly every 10 minutes, but this fluctuates (which is why one can only estimate the exact time a block will occur).