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Bitcoin Market Report: 25 May 2014

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bitcoin-bull-marketAt the time of writing, the Bitcoin exchange rate is once again climbing steeply, trading at $580 and rising. As previously reported, once it became evident that the medium term down trend had been broken, heralding a new phase of the long term bull market, the shorts would cover and those on the sidelines would jump on board the next bull train causing an explosive movement, and this is what we are currently no doubt seeing.

The market is now well over-bought and ready for a pull back.

 Bitcoin 14 day chart 25 May 2014

The market is currently in an explosive up-trend as the shorts cover and go long, and with confirmation of the new phase of the long-term bull market those sitting on the sidelines are scrambling to buy in for fear of missing the train.

As can be seen from the RSI, the market is currently in an extremely over-bought position and due for a pull back, as also indicated by the 100 day moving average which has been seriously breached.

With the market oscillating between over-bought and over-sold conditions, it is ideal for actively trading, but ultimately, as if seems likely, the next phase of the long-term bull market is in place, a buy and hold strategy taking a long term view would be less stressful and probably more profitable.

At the time of writing, with the market at $580 and well over-bought, a pull back to between $555 and $565 is highly probably and reasonable to prevent the exchange rate becoming too overheated.

Everyone will be asking what has been the catalyst for this sudden surge when in reality it is long overdue, no matter what or who the catalyst was.

Bitcoin Reporter identified and reported current fair value for Bitcoin at $500 a month or so ago, and the market was consolidating extremely well at $500 until more new and rumours out of China threw the exchange rate down $50 to the $450 level. What we have seen therefore is the consolidation process complete at the lower level, and once completed blast straight up through current fair value of $500 to the current levels, which would have been attained sooner from $500 had the Chinese news had not intervened. So the new phase of the bull market is launched from from $450 instead of $500 and is progressing late as it would have from $500 previously.

There remains much caution among traders and investors who suspect that a very large player is buying and therefore "manipulating the market" and may just as easily cause a reversal, effectively being a bull trap. The sustained action of the last three days suggests that this is highly unlikely. A large player may have caused the initial spike, but that has caused the bulls to charge and push the market much higher against high volume, so even a large player would be very unwise to short the trend at this point - there is much more to be gained by going or staying long and riding the upwards trend and new phase of the bull market. 

There will no doubt be still many traders and investors sitting on the sidelines prudently waiting for more confirmation of the bull market, and so as the exchange rate climbs, more will buy in, thus sustaining the trend.

The fundamentals for Bitcoin are excellent and never looked better from every possible perspective, including user and merchant take up, venture capital investment, development and innovation and widespread promotion and awareness events. All of these will now be reacted to by the market, while any negative news, unless extremely damaging which is highly unlikely with nothing on the horizon, being largely ignored.

Bitcoin Market Outlook

Bitcoin year to date chart 25 May 2014

The year to date chart is confirming that the market is now in the early stages of the next phase of the long term bull market.

Whether the current steep rate of appreciation can be maintained remains to be seen, it is however to be expected that the bull phase will be steeper than the bear phase has been. This is due to the fact that much of the down trend, certainly the latter stages, has not been due to Bitcoin holders progressively selling out, but rather speculators naked shorting the exchange rate. Now the trend has turned the naked shorts have and will cover and go long, but in addition the traders and investors that have been waiting on the sidelines will progressively buy in to the market with a net cumulative effect on the steeper trend upwards.

Once the initial stages are over and the market settles down, the trend may become less steep, and behave more like a typical market with the sine wave type ups and downs in a net upward direction.

One thing we can say is that this year Bitcoin has matured from a wild west type market to a much more mature, less volatile, coherent market which can only be a further exceptional positive for Bitcoin going forward. 

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