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Bitcoin Market Report: 21 April 2014

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knc-minerThe Bitcoin exchange rate is continuing to consolidate solidly around current fair value of $500, forming a base for the next stage of the long term bull market. Over the last few days there have been several concerted attempts to drive the exchange rate lower, but to no avail as the price bounced back to the $500 level.

With buying volume outweighing the sell side of the market, overall sentiment is firmly now in favour of the bulls setting the stage for the next upwards trend to a new fair value one this all plays out.

bitcoin-chart-10-day-april-21

With little news of consequence over the last few days, the Chinese rumour mill becoming tedious, the Bitcoin exchange rate has been able to continue in a solid channel of consolidation, resisting all efforts to drive the market lower. Most encouragingly, the high volume days have been on the buy side of the market in stark contrast to recent weeks were sellers had the upper hand which was reflected in the price slide culminating in the dive to $350 coincident with the 50/200 SMA "death cross" on the charts. The next significant chart event will be the"golden cross" of 200 SMA moving up through the 50 SMA heralding the next phase of a strong bull market.

Away from the the technical perspective, the fundamentals for Bitcoin are looking exceptional moving forward, with a constant flow of positive news on Bitcoin activity in all sectors, strengthening its position no only against other crypto-currencies but against the plethora of failing, increasingly worthless fiat currencies as well.  The future of Bitcoin looks very bright as a medium of value exchange and store of value which will become apparent as fiat currencies and banks continue to fail the population and represent a systemic failure risk to the global financial system as it is today.

As previously mentioned, another dynamic that influences the Bitcoin exchange rate is supply and demand. The demand for Bitcoin will increase exponentially as more and more merchants begin to accept Bitcoin as an alternative to fiat currencies, in turn acting as the catalyst for more demand from consumers, many of which will be venturing in to Bitcoin for the first time. This is reminiscent in many ways to the Internet payment service Paypal, which started out very small, used mostly to send and receive money from friends and relatives, but grew exponentially as more and more merchants began to accept payments by Paypal. Bitcoin will follow the same path, while rendering Paypal progressively obsolete at the same time, with Bitcoin offering a seamless, frictionless, decentralised peer to peer payment service, most importantly without any banking or other intermediaries.

Bitcoin is following the same evolutionary curve as many previous now household innovations such as the desktop computer, Internet and associated services, smart phones, DVD/Blu-Ray and others. Bitcoin remains in the earliest stages of this cycle still not having reached a critical mass of users. When it does, which will take years rather than months, the ultimate potential for Bitcoin is vast with an exchange rate to match.

The end-game of course is Bitcoin becoming a de-facto standard instrument of value exchange where everyone is paid in Bitcoin, saves in Bitcoin and purchases goods and services with Bitcoin, which looks highly likely in the foreseeable future.

Another dynamic is supply which is the function of the Bitcoin miners. Bitcoin began with mining taking place on home computers, and then as the difficulty algorithm has exponentially increased so too has the resources required until today miners occupy huge warehouses full of racks containing rows and rows of specialised ASIC mining devices such as the one in the feature image of a facility of KNC Miner based in Sweden. Facilities such as this require immense resources, especially electricity, using as much as a small town. These facilities cost millions of Dollars per month to operate, but mine millions of Dollars per month in Bitcoin blocks worth 25 Bitcoin or $12,500 per block, one of which is mined every 10 minutes.

Mining is hitting the buffers of both technology and profitability with ASIC technology reaching its current limits, and with Bitcoin at $500 reaching the lower limits of profitability. It is likely then that the amount of Bitcoin being dumped by miners to fund ongoing operations will slow to a more consistent pace, which will be positive for the Bitcoin exchange rate overall moving forward.

Looking at the Bitcoin arena generally, the news out of China is no longer influencing the market as much as before, and there is no other negative news on the horizon. The exchange rate will be supported then by the ongoing flow of positive news.

Bitcoin Market Outlook

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If the Bitcoin exchange rate can continue to consolidate around current fair value of $500 until at least the end of April, then there will be a very solid foundation for the next phase of the long term bull market supported by excellent fundamentals.  It may be that that BTC needs to re-test $450 and if that fails to hold, re-test $400, but any such re-test is likely to be short lived with plenty of buyers at those levels bring the exchange rate back to $500.

While it is possible that China may still exert some sort of influence, it is likely to be smaller and temporary as most eventualities are already factored in to the price.

The current emphasis on the buy side coupled with increasingly bullish sentiment and diminishing of the effect of news out of China, this week should see the Bitcoin exchange rate trading and consolidating around $500 as the market gears up for a new stage of the long term bull market.

 Bitcoin Chart Up-trend April 22 2014

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