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Bitcoin Market Report: 19 April 2014

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bullish-bearishAs the Bitcoin exchange rate continues to consolidate around current fair value of $500, the bears are not willing to relinquish their hold on the market willingly. After several days of consolidation around the $500 level, the exchange rate dived down to the $470 level on Friday, before bouncing back over $490, within the consolidation range on Saturday.

The bulls are beginning to gain the upper hand as news coming out of China is ceasing to exert the previous negative influence. 

 bitcoin-chart-10-day-april-19

After diving down to $350 on the 50/200 SMA "death cross" coinciding with news of China that banks are stopping deposits of cash for Bitcoin transactions, the exchange rate, as predicted, bounced back to current fair value of $500 where it has been consolidating for nearly a week. As previously reported, this is precisely what the market needs to do to build a base for the next phase of the long-term bull market and move up to a new level.

There was a glitch on Friday when the exchange rate suddenly dipped on more of the same news out of China, but was fairly short lived as the market becomes bored with the same news days after day, bouncing back over $490 which is in the consolidation range of $490 to $520.  The longer the market can consolidate around his level, the firmer will be the basis for the next leg of the bull market.

As Bitcoin matures and behaves more and more like a conventional financial instrument such as a currency or commodity,  we can expect to see less and less wild price swings in the future, in stark contrast to the wild price action of the previous year.

From a fundamental perspective, it is only a matter of time before the market once again begins to react favourably to the constant stream of positive news and keep any negative news in a proper perspective, in contrast to the ongoing reaction to news coming out of China which should have run its course weeks ago.

It is difficult to contemplate any news negative enough as to seriously hit the Bitcoin exchange rate moving forward, most possible scenarios already factored in. The recent news of the IRS ruling that Bitcoin is to be taxed as "property", while far from positive for Bitcoin, was at least confirmation that crypto-currencies are accepted and will not be banned altogether. Further, any change in the IRS position on Bitcoin to tax it as a currency, in line with the UK HMRC for example, would be extremely positive news for Bitcoin which would send the exchange rate soaring.

As recently reported by Bitcoin Reporter, the other big factor is liquidity. It is possible that there are as few as five million BTC in general circulation, the remainder being held for longer term gains, and as new Bitcoin investment vehicles and investors generally continue to hoard for the future, the amount available, especially as mining is becoming increasingly difficult and less productive is likely to reduce, meaning that on a supply and demand basis upward moves are likely to be that much more significant, especially in a Bull market.

Another factor that is weighing on the market is the ongoing scandals that bring Bitcoin in to disrepute. On the heels of the soon to be liquidated Mt. Gox comes the apparent failure of Bitcoin start-up Neo and Bee, under circumstances that contain striking similarities. Both companies were closely owned and controlled by inexperienced business people, with an unproven track record, and both whom maintained such total control over the company and its assets, notably Bitcoin, that not even other directors were kept informed and given necessary data to carry out their responsibilities. In both cases large amounts of Bitcoin remain unaccounted for.

While all this is highly reminiscent of the evolution of the Internet, leading to the ".com crash" at the turn of the millennium, when Internet start-ups with zero chance of success were getting millions of VC funds which were wasted before the company went bankrupt, it is still not good for Bitcoin. Hopefully lessons will have been learned and both customer and investors more diligent in future.

Overall the future for Bitcoin is as bright as ever, and setbacks such as we have seen for the last few months are to be expected as Bitcoin evolves and matures.

Bitcoin Market Outlook

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If the exchange rate can continue to consolidate around current fair value of $500, the stage will be set for the next phase of the bull market unless any really negative event upsets things.

If Bitcoin cannot hold these levels and slips significantly, the exchange rate may have to re-test $450 and if that fails to hold $400 before bouncing back for another attempt at consolidation around current fair value of $500.

Longer term market sentiment is much improved over recent weeks, and it is only a matter of time before a new leg of the bull market commences, supported by excellent fundamentals, before finding a new level and fair value at which to consolidate again.

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