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Bitcoin Market Report: 1 May 2014

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bitcoin-futures-exchangeAfter sliding heavily from the $500 current fair value consolidation level on April 25 on more news out of China, and more of the same on April 28, the Bitcoin market has been on a volatile but pivotal ride.  Following the last slide down to the $425 level BTC has shown excellent strength with reducing volatility, with the emphasis on the bid side of the market with much improved bullish sentiment.

Supporting the improved sentiment and market strength has been a continuation of positive news.

 bitcoin-7-day-chart-1-may-2014

Over the last couple of days following the bashing  the exchange rate suffered at the hands of yet more news out of China, BTC has produced an impressive performance against a backdrop of reducing volatility, orders favouring the bid side and above all breaking through resistance at $452. 

If the exchange rate can continue to trade above $452 while maintaining its current strength, it is well positioned to begin reclaiming the ground lost due to the China news back towards the all important $500 level. Had it not been for the latest news out of China, which really was nothing new and almost looks like manipulation, then Bitcoin may well have concluded its consolidation around $500 and embarked on the next phase of the long term bull market.

If the exchange rate can continue to trade above the $452 level for a couple more days, $452 will become a support level as a platform to regain $500 and a further round of consolidation. 

Contingent on this will be no further negative news out of China, and a continuing flow of positive news. It looks increasingly unlikely that China can exert much more influence over the market generally. The original position of the Peoples Bank of China has been totally consistent throughout, that banks cannot accept deposits relayed to Bitcoin and that Bitcoin will not be banned in China. It is the exchanges that have chosen to disregard these rulings and then forced to react when ordered to by PBoC. It is these reactions from exchanges that have caused the price hits, when in fact it should have had no effect at all. 

The positive news continues with financial data giant Bloomberg now quoting BTC on their massive network of terminals feeding the major financial centres around the world. This is a huge endorsement of Bitcoin as a valid and credible financial instrument in its own right before thousands of financial institutions and professionals. The effect of this could be extremely positive for Bitcoin going forward as investment funds of all types look to include BTC in portfolios, and when these funds buy, they do so in serious volume which can only move the market upwards.

In a further surprise but welcome statement, Larry Summers, once the front running candidate to become Chairman of the Federal Reserve and advisor to President Obama, has warned "not to write off Bitcoin saying:

 

I’m not ready to stand with those who are sure they have seen the future here, but it seems to me that it’s a serious mistake to write this off as either ill-conceived or illegitimate.

 

It seems to me that the people who confidently reject all the innovation here are on the wrong side of history.

 

I am much more confident that the world of payments will look very different 20 years from now than I am about how it will look.

 

 

While this is not an endorsement of Bitcoin per se, it is sending a very strong message that to ignore or dismiss Bitcoin would be extremely unwise, because history has shown that the future is unknown and can develop in very unexpected ways. This is particularly true with the global financial system on the brink of collapse, at which point the world will be seeking better alternatives.

And these are just a notable sample of the continuing news that can only be regarded as extremely positive for the future of Bitcoin. Once the market puts China behind it and begins to embrace all the positive news and developments for the future of Bitcoin, then the market will surely resume its long term bull run over the next few years.

For now, the market needs to get over China, realise what exceptional value BTC has become against an extremely over-sold position, and focus on regaining the $500 level to form a base for a resumption of the long term bull market which has barely got started yet.

Bitcoin Market Outlook 

 Bitcoin chart - year to date - 2014

$500 has become a crucial target for the exchange rate for a number of reasons. Aside from being current fair value and accordingly a major week long consolidation level prior to the latest China effect , it remains not only the consolidation level where a base can be formed as a platform for the next phase of the long term bull market, but most importantly will also have broken the 3 month down-trend. All of these factors combined make $500 a crucial target for Bitcoin to regain in the near future.

For the immediate future we are looking for the exchange rate to trade above the previous resistance of $452 against a backdrop of low volatility and continued emphasis on the buy side of the market. The market ability to do this will largely depend on continued bullish sentiment and a willingness to put China behind it, instead focussing on the ongoing flow of very positive news.

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