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Bitcoin Market Analysis: 29 March 2014

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bitcoin-chart-10-day-march-29-smallThe Bitcoin exchange rate continued to slide this week amid bearish sentiment, negative news and rumours driving the market down, positive news ignored. The market generally is still seeking fair value after the bubble caused by Chinese buying earlier in the year, and may well now be finding that level.

Before the Bitcoin Exchange rate can move forward, a solid price base must be found, and appears to be close today as the market consolidates recent losses around the $500 mark.

bitcoin-chart-6-month-march-29

The Bitcoin Market Is Seeking And Appears To Be Settling On Fair Value Ex-China.

If we look at the above 6 month chart overlaid with the 6 month moving average, we can clearly see that the MA has smoothed out the excessive volatility and most notably has intersected the Bitcoin exchange rate at around the $550 mark. This intersection of 6 month MA - which encompassed the entire China factor - with the market price a couple of days ago, suggests that the market is pricing Bitcoin at around $500 - $550 with China factored out of the equation and is consolidating at the lower level.

As has been the case for a while now, a constant flow of positive news fails to impress the market, while any negative news becomes a reason to sell. The last part of the week has provided plenty of reasons to sell, first with the IRS tax ruling, followed by yet more rumours out of China of an outright ban on Bitcoin.

The news that the IRS in the USA has ruled that Bitcoin is to be taxed as property initially failed to move the market. The news was viewed as a double edged sword, the positive being the removal of taxation uncertainty, the negative being that the administrative burden would kill mainstream uptake of Bitcoin as as currency. After a period of indecision, the latter, particularly with the prevailing bearish sentiment prevailed, and the market drifted lower.

Then came yet another unconfirmed rumour out of China that Bitcoin could be banned or heavily restricted to the Chinese population, previously big buyers of Bitcoin, and the market immediately reacted by sliding lower on high selling volume, finishing the week oscillating above and below the $500 mark.

The excessive market levels reached in December and January due to heavy buying by the Chinese was offset by heavy selling on any negative news on regulation coming out of China, so market action December through January was fundamentally down to the China effect, with speculators jumping on the bandwagon on the way up, and jumping off the bandwagon on the way back down causing extreme volatility which has now been priced out.

Bitcoin Market Outlook

So what next for the Bitcoin exchange rate?

Bitcoin is now firmly at a cross roads where it either accepts circa $500 - $550 as fair value, consolidates and then resumes a sustainable up-trend, which seems most probable with current resilience around $500, or continues to drift lower, triggering the 50/200 MA "death cross" which could see a further $100 - $150 off the market.

bitcoin-chart-10-day-march-29

The deciding factors for market direction this week will probably be overall sentiment and ratio and extent of negative versus positive news.

bitcoin-price-poll-march-27

In a recent poll by Bitcoin Reporter, sentiment to the end of March was overall quite even across 533 voters.

Predicting under $500 - 32.08%

Predicting $500 to $549  - 28.33%

Predicting $550 to $600 - 23.45%

Predicting over $600 - 16.14%

Most significantly, nearly 68% of voters from the Bitcoin community predicted the exchange rate to remain around current levels or higher, which is supportive sentiment.

While good news will probably still fail to impress the market at this juncture, negative news may have more of an impact, but less so now the China factor has been priced out of the market.

Overall then the evidence suggests that the market could most likely consolidate around $500 for a while, trading sideways, before beginning a sustainable up-trend. 

The caveat is this is Bitcoin, a brave new world of currency as well as speculating and investing, and one where anything could happen and often does. 

Traditional "technical analysis" is entirely useless in the Bitcoin market and probably always will be. The volume and liquidity is too low and the dynamics of Bitcoin completely different to other markets because Bitcoin is much more than just a vehicle for speculation, with a diverse participant profile. The number of participants using technical analysis is also much too low to be meaningful, unlike other markets such as forex, stocks and commodities where numerous technical traders are all reacting to the same indicators at the same time. 

Bitcoin market analysis is almost entirely based on trends and above all the fundamentals, requiring an in depth knowledge and understanding of every aspect of Bitcoin dynamics, technology, commerce as well as Internet and technology trends in genera, and feeling the pulse of Bitcoin.

Note: The foregoing represents our own analysis and opinions, and in is in no way intended to be investment or financial advice of any type.

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