An event for Bitcoin, a 'non-event' for its price

• The standard chain quickly gained an advantage over the BIP-110 branch in accumulated work.
• BIP-110 does not modify the limit of 21 million BTC or its issuance schedule.

Bitcoin underwent a network fork following the activation of BIP-110, but the price of bitcoin (BTC) did not register significant movements and remains around $65,000.

The reaction allows us to separate two dimensions that do not necessarily progress together: the relevance of an event for Bitcoin as a technology and its impact on BTC as an asset. BIP-110, a proposal aimed at temporarily limiting certain non-financial data in transactions, generated a division between the nodes that adopted its new rules and those that continued using the standard software, but so far that dispute has not translated into the market.

The fork occurred as reported by CriptoNoticias, the separation took place at block 961,632, when the nodes that adopted BIP-110 rejected a block without the signaling required by the proposal, while the rest of the network accepted it as valid.

From that block, both groups began to build different chains under different rules. The Bitcoin chain accumulated 6 more mined blocks than the BIP-110 chain in the hour following the fork. The standard chain quickly gained an advantage in accumulated work, backed by pools like AntPool, Foundry USA, F2Pool, and BTC.com, while the BIP-110 branch advanced with a considerably lower computing capacity.

The term "non-event" was already circulating among members of the bitcoin community to describe BIP-110 and downplay its potential consequences on Bitcoin. The term also appeared in analyses prior to the activation of the proposal.

On July 28, Edward Wu, head of research at BloFin Research, analyzed what BIP-110 could mean for investors. His conclusion was straightforward: "BIP-110 is close to being a 'non-event' for BTC as an asset."

Wu based that reading on the fact that the proposal does not modify the limit of 21 million BTC, its issuance schedule, or existing holdings. The risk for the asset lay in another scenario: that a potential fork could gain enough mining and economic support to compete with the dominant chain. That did not happen.

BIP-110 seeks to temporarily limit the amount of non-financial data that can be incorporated into certain transactions. The discussion arose due to the growing use of block space for inscriptions and BRC-20 tokens starting in January 2023.

For BIP-110 supporters, the discussion revolves around preserving Bitcoin as a money-oriented network. As Wu explains, "storing unrelated images and files creates a permanent burden for each full node that must download and maintain the blockchain." Furthermore, he warns that, from this standpoint, "transactions with large amounts of data compete with payments for limited block space."

On the other side, Wu explains that critics believe that "Bitcoin should treat all valid transactions that pay fees neutrally," allowing the market itself to determine how that scarce space is distributed.

Behind the technical change lies a broader discussion about what uses Bitcoin should accommodate and who can set those limits.

Wu had warned that a fork with sufficient backing could generate "short-term volatility," suspensions of deposits and withdrawals on exchanges, uncertainty about which chain would retain the BTC ticker, and fragmentation of liquidity.

He had also anticipated the opposite scenario: "A fork with little hashrate, liquidity, or adoption by exchanges would have limited relevance for the value of the dominant BTC.","summary":"Bitcoin's recent network fork did not significantly impact its price, remaining around $65,000, despite the activation of BIP-110, which aims to limit non-financial data in transactions."}]} }

This last point is closer to what ultimately happened. The BIP-110 branch ended up with a fraction of the hashrate and did not achieve enough economic weight to alter the valuation of BTC.

The episode poses specific risks for those interacting with both chains, including the absence of replay protection, which can allow a transaction made on one chain to also be valid on the other. However, this technical issue did not impact the price either.

The response to BIP-110 also aligns with something that has been happening with bitcoin: internal events seem to have less capacity to alter its price, while external variables increasingly capture the attention of investors.

Among these factors are signals from the Federal Reserve (Fed), the geopolitical situation, and institutional flows. These variables influence market expectations, although their effects have also been limited and, so far, have not managed to pull BTC out of the relative stability it maintains around $65,000.

The recent hack of Coldcard provided another insight from within the ecosystem. The vulnerability affected a self-custody tool and forced numerous users to move their funds for safety. On-chain activity surged, but the price did not register a comparable reaction to the magnitude of the incident within the community.

BIP-110 is a different case: this time the controversy occurred directly around the rules used by Bitcoin nodes. The market outcome, so far, has been similar.

Both episodes reinforce a characteristic of the current stage: BTC increasingly functions as a global financial asset, and its price seems to pay more attention to the variables that determine risk appetite and capital flows. This does not mean that these factors are dominating the price. Not at all. It is true that, for now, both internal and external catalysts are having a limited impact.

The bitcoin community spoke of a 'non-event' before the fork. Ultimately, the technological event occurred, and the term ended up fitting better in the market: neither BIP-110 nor other recent catalysts managed to significantly alter the price of bitcoin.