Cash, bitcoin
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When a new tradable asset hits the market – especially one that claims to be worth more than $5 billion at launch – investors are certain to have questions.

But in the case of Bitcoin Cash (BCC), the questions are more important than the answers – particularly because at this early stage people are mostly assuming answers.

What's the price of Bitcoin Cash? Sure, exchanges will give you quotes. But what does that price actually mean? 

The unfortunate answer after the first few days of trading is not much. And that's not the only area where the market could benefit from additional clarity.

Who has access to BCC? 

Perhaps the most basic question for investors is: When the blockchain split, who exactly was given access to Bitcoin Cash? And how big is the market for trading?

As of August 1, holders of bitcoin who either controlled their private keys or had accounts with exchanges that were supporting Bitcoin Cash should have had access to an equal amount of cryptocurrency on both the bitcoin blockchain and the newly created Bitcoin Cash blockchain.

Some popular exchanges in the U.S. and abroad, however, chose not to support Bitcoin Cash.

And understanding whether exchanges support Bitcoin Cash is more complicated than a simple yes or no. As an example of this complexity, one bitcoin blog reported the seemingly straightforward question with multiple different answers, including the simple yes and no, plus "potentially not at a 1:1 rate" and "not at fork time."

Further, some bitcoin owners (due to language confusion or disinterest) may not have even known (or cared) that there was a split.

At the end, who got what? Like many things in the cryptocurrency space, that answer is unclear.

What's the value proposition?

After figuring out whether or not they have access, investors will ultimately want to know whether they should hold, sell or buy more Bitcoin Cash. And that query relates to the new cryptocurrency's long-term value proposition – one that it has only just begun to really develop.

Bitcoin, unlike Bitcoin Cash, has an established history as a medium of exchange, being used to buy goods and services from a well-established network of merchants. While much of bitcoin's activity is speculative in nature, there are other use cases which have stabilized the price.

In short, when the blockchain split, the bitcoin code was copied (with a few tweaks), but its infrastructure was not.

Wallets, exchanges, merchants and mining power put toward bitcoin didn't automatically start providing the same services for Bitcoin Cash.

And now that bitcoin and Bitcoin Cash are competing in the same market, it's unclear if the ecosystem surrounding bitcoin will also build up around Bitcoin Cash. In a sense, it's like having two companies competing for the same clients.

Bitcoin Cash has yet to articulate its unique value proposition in a clear and well-defined manner, although it has staunch idealists who believe its bigger block size will create a vastly more efficient and user-friendly payment system. And ultimately, its long-term viability is dependent on this ability to create utility and value for any ecosystem that grows around it.

An important point to note here is that Bitcoin Cash exchanges will be for-profit businesses, so if a sustainable revenue model for creating liquidity on exchanges doesn't exist, Bitcoin Cash's future becomes less certain.

What's the market cap?

Defining the market capitalization of an asset is an important part of understanding its market structure.

As of press time, Bitcoin Cash's market capitalization was being reported at around $3.9 billion, making it the "fourth largest cryptocurrency," according to CoinMarketCap. But that market cap doesn't represent the amount of exercisable capital actually invested in Bitcoin Cash.

After all, the phrase "market capitalization" comes from the equity world. In equities, market cap is equal to the total shares outstanding multiplied by the market price of a stock.

In cryptocurrency, it's equal to the number of coins in circulation multiplied by the price. Some of the coins counted under this definition then may not, in fact, be under anyone's control. When bitcoin holders lose their private keys, their bitcoin enter a kind of limbo state: They are effectively dead to their owners, but still appear to be active on the network and are counted toward the cap.

For example, one of the largest holders of bitcoin is its unknown creator Satoshi Nakamoto, who has never spent a coin, and likely will never spend a coin, either bitcoin or Bitcoin Cash.

Another wrinkle for Bitcoin Cash could be presented by bitcoin's cap on coin count. The total number of bitcoins allowed under the current codebase it 21 million. As of today, 16.5 million have already been mined.

Does that mean Bitcoin Cash can only mine 4.5 million more coins for the duration of the time the cryptocurrency is in use? Will Bitcoin Cash propose to adjust that parameter in the future?

At this point, answers to those questions remain unknown.

What's the price and liquidity?

These could be the most important questions for the market, since without a clear, reliable and transparent pricing mechanism it's impossible for owners to determine the value of their holdings.

Right now, many in the business media are reporting on prices as though they were based on well-established and open standards. But they're not.

Making a price determination will also be important for bitcoin holders whose exchanges did not support Bitcoin Cash, since a high enough price could increase the odds of collective pressure being brought and policies being changed.

Building on that, is a price a real price if you can't trade an asset anywhere near it? For example, if you see a market price of an asset, but as soon as you attempt to trade at that price the liquidity immediately dries up, does the price have any meaning?

Market volume in Bitcoin Cash is being quoted by market data providers. But whether or not volume being quoted represents true liquidity is another question entirely.

We do know 24-hour liquidity was being quoted on some data service sites before the market had been open for 24 hours. No reference was made to how these calculations were being done. That alone suggests that some potential irregularities exist around data reporting.

If there are, say, 20 percent price differences between different exchanges can an asset be said to have a consistent price? A casual look at Bitcoin Cash prices on Friday showed price deltas between exchanges in that range.

Should investors view this (and other questions) as an opportunity or an obstacle? One thing is clear, for now, these questions will certainly prove important to keep in mind.

Bitcoin on cash image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at [email protected].

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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