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Bitcoin Market Report: 27 April 2014

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the-peoples-bank-of-chinaAfter taking a 10% hit following yet more of the same "news" out of China, Bitcoin is trading within a new lower support/resistance range of $450 to $470. This has become a farcical situation that is unambiguously negative for Bitcoin, where the market can be influenced at will, not by money, but by news outlets in what often seems like a ploy for cheaper Bitcoin.

For the global Bitcoin industry and community, it would be better if China banned it totally to remove this malign influence.

the peoples bank of china

The above chart speaks for itself. Bitcoin had been consolidating nicely around current fair value of $500 for a week or so, overcoming weakness in the process, when the Chinese media outlet Calxin News announced to the effect that Bitcoin Exchanges in China are "blatantly violating the rules causing the Peoples Bank of China to act". An official of PBoC was quoted as saying:

 

The current level of services that banks and third-party payment processors provide counts as directly providing services to Bitcoin related companies. Online stores and public marketplaces that sell or trade “deposit codes” from Bitcoin exchanges counts as indirectly providing services to Bitcoin related companies”. The PBOC official made clear that both of kinds of services must stop. Banks and third-party payment processors must close their payment terminals at these exchanges and terminate their accounts immediately.

 

 

While this seems to be a fairly definitive and robust statement, it is hardly new news, but rather a re-hashing of the existing PBoC policy on Bitcoin which in summary is that no bank in China under the regulation of PBoC is permitted to extend banking services to Bitcoin exchanges or any other business offering Bitcoin related good or services. What appears to have happened is that some banks were not enforcing the ruling and exchanges were taking advantage of it, but now PBoC is ordering the banks to comply.

Bitcoin itself is not banned in China, and the Chinese government have already stated that Bitcoin cannot and will not be banned in China. This means that people in China can buy and sell Bitcoin and with Bitcoin, but not use use the banking system. Chinese exchanges will overcome this by simply moving offshore out of the jurisdiction of the PBoC. People living in China will therefore still be able to buy and sell Bitcoin in Yuan for investment and trading purposes, but the outlook for Chinese business accepting Bitcoin looks bleak.

In the meantime, once again, as has been the case for the last 6 months or so, the global community has to tolerate the cycles of booms and busts caused by China. Virtually every unrealistic market move including the bubble that took the exchange rate to $1160 and then crashing 50% soon afterwards have been directly attributed to China, with Mt. Gox an secondary factor, now out of the equation. 

It is unclear whether the major price moves have been the outcome of Bitcoin activity among the Chinese people, or the rest of the world reacting to Bitcoin news out of China, or a combination of both, but one thing is certain, all these moves have been blown completely out of proportion to the global Bitcoin arena as a whole, but with a global effect on Bitcoin generally due to the volatility and uncertainty. The sooner China is out of the equation the better, and it finally looks as if that may be close.

As for the Bitcoin exchange rate, after the bashing arising from the news out of China which threw BTC out of its $500 consolidation channel down to a lower trading level, Bitcoin successfully tested and overcame the first major support level at $450 and is currently trading between support and resistance at $470, looking to return to the $500 consolidation range prior to the China effect..

Bitcoin Market Outlook

bitcoin market outlook 27 april 2014

Before China slammed the Bitcoin exchange rate, it was consolidating nicely at current fair value of $500 which remains current fair value despite the Chinese influence. 

BTC is now consolidating at a lower level with support holding around $450 and resistance at round $470. The next stage is for the exchange rate to overcome resistance at $470 to regain the $500 level, where a new round of consolidation can commence. In view of how the exchange rate bounced back to $500 from a low of $350 recently, short of any further negative news BTC should trade sideways between support and resistance for a while, before moving back up to $500 for further consolidation leading to the next phase of the long term bull market.

The big question now is whether Bitcoin can finally throw off and ignore the China factor, because until it does it is not going anywhere and volatility as well as a potential lower exchange rate will prevail.

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