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Bitcoin Market Report: 17 April 2014

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Peoples-Bank-Of-ChinaThree weeks ago Bitcoin Reporter determined that current fair value for Bitcoin to be around $500. Bitcoin Reporter also accurately predicted the fall to the $350 level followed by a bounce back to current fair value where the exchange rate would consolidate before commencing the next leg of the bull market and a steady progression towards a new high next year.  

The fundamentals lined up with clarity from the Peoples Bank of China relating to how banks are regulated against Bitcoin.

 

bitcoin-chart-10-day-april-17

It has been an extremely volatile but pivotal week for the Bitcoin exchange rate with a dive down to around the $350 level coinciding with the 50/200 SMA "death cross" on the charts, and dire fundamentals following Chinese exchanges announcing they can no longer accept deposits against Bitcoin transactions.  As predicted, the exchange rate quickly bounced off the lows back to the $450 level after the Peoples Bank of China stated that it is not going to ban Bitcoin, before re-testing $400 and stabilizing for a while.

Over the following couple of days, again as predicted, the Bitcoin exchange rate has bounced back over $500 in to the current fair value region where it has been holding steady between $500 and $520.

For the last few weeks persistent rumours originating in China conspired to keep driving the exchange rate lower, every time progress was being made. In retrospect some of these rumours were probably deliberate to drive the exchange rate lower. 

The big date that everyone including the market was fearing was April 15, supposedly the final date for Chinese banks to comply with the orders of the Peoples Bank of China. As it happened. April 15 came and went without so much as a tremor from a regulatory perspective, being very much business as usual.

This was later confirmed by Bobby Lee, CEO of the large Chinese Bitcoin exchange BTC China, when he stated:

 

Our situation hasn’t changed. We’ve been talking to banks, the ones we have personal relationships with, and so far we’ve not received any notice to close our business with them.

 

We’re still fully holding all customer assets, I want to emphasize that. There’s nothing missing, there’s no misappropriation or frozen funds. All our funds are liquid and fully accessible. We don’t invest any of our funds in special ‘wealth management products’, or anything like that. Everything is liquid funds.

 

So basically either the ruling by the PBoC is either hearsay, or the banks used by Bitcoin exchanges have largely chosen to disregard it. Alternatively the PBoC may have simply issued guidance to the banks without enforcement.

From the market perspective, it is reasonable to assume that this long running saga has finally run its course, and nothing less than an outright ban in China, which looks extremely unlikely, can further rattle the markets.

In other news, Mt. Gox have announced that the defunct business is to be liquidated. This implies that all attempts to revive the exchange have now been abandoned and assets sold to pay creditors to the extent possible, suggesting that the 200,000 Bitcoin that just happened to turn up will be sold for cash to pay creditors. It is unlikely that those who held Bitcoin and/or cash at the exchange will be classed as creditors, but will presumably be in line to receive a proportion of whatever is left after creditors are paid. 

The main issue is how the 200,000 Bitcoin will be liquidated. If they are dumped on the open market for whatever they will fetch, it could well depress  the exchange rate for a while. It is however more likely that the 200K Bitcoin will be sold privately, for example to one of the new BTC investment funds, in which case the market price is unlikely to be affected unless the details of the transaction became public.

There has been no other significant market moving news in the last couple of days, although the flow of positive news continues.

Bitcoin Market Outlook 

bitcoin-chart-6-months-april-17

The market now needs to consolidate around the $500 level, meaning between $490 and $520 for a couple of weeks at least in order to build a base from which the next  stage of the long-term bull market can take off. If the market cannot hold on to this level and slips significantly, then it may have to re-test $400 once more for confirmation before bouncing back for another go at consolidation.

Ultimately we are looking for the 50 day SMA to move back up through the 200 day SMA  - the "golden cross" - which will herald the next leg of the bull market. Today the 50 day SMA is flatting out which is a step in the right direction.

With China now out of the picture we are looking for the market to begin welcoming good news with buy orders and keeping negative news in a proper perspective. The exchange rate cannot advance until this crucial change in sentiment occurs.

Looking further ahead, the current situation is just a normal correction in a long term bull market. Every day is bringing more positive news and support for the future of Bitcoin in many different ways.

The wildcard is the escalating situation in the Ukraine which has the potential to seriously, if not terminally hit the US Dollar and/or global banking system, in which case Bitcoin will no doubt become a new safe haven. The US Dollar is at the end of its cycle in any case. Fiat currencies,  not backed by Gold have a typical life cycle of 40 years. The US Dollar is 43 years in to this cycle, after being cut loose from Gold in 1971. Only the issuance of debt has delayed the inevitable, but not for much longer. When the US Dollar and global financial systems implode - banks are in a much worse state now than in the 2008 financial crisis - Bitcoin will be a safe haven, with an exchange rate potential of orders of magnitude from where  it is today.

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