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Bitcoin Market Report: 29 April 2014

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bitcoin-connected-worldThe Bitcoin exchange rate has experienced another roller coaster ride over the last couple of days. The first support level of $450 was breached causing another dive down towards the next support level of $430 which held allowing a strong rebound back.

As $450 was breached it has now become a resistance level which the exchange rate must overcome before BTC can overcome current weakness and make further progress through $450 and onwards to the $500 level.

bitcoin-7-day-chart-29-april-2014

While $500 still represents current fair value, relentless news and rumours out of China have continually conspired to depress BTC significantly below this level, thwarting all attempts at consolidation.

The current action has also further suppressed sentiment with bears having the upper hand over the bulls, with the latter clearly despairing over the apparent inability of BTC to break the 4 month down trend and commence the next leg of the long term bull market. 

A look at the Bitstamp order book reveals the following:

Bid: 133,840.07 BTC - $9,144,352.8

Ask: 24,738.63 BTC - $18,474,220.12

While the number of buyers outweighs the number of sellers by a factor of nearly 6 to 1, in value terms there is double the sell orders versus buy orders. This implies that buyers are most likely individual players who are willing to buy on pure sentiment - a fact consistently confirmed in the Bitcoin Polls which highlights a very bullish sentiment. The sellers on the other hand are clearly fewer but larger players who are looking at the market from an objective, technical perspective, concluding that the down trend is still in place and there will be opportunities to buy back in at lower levels in the future.  Of course this is a generalisation and Bitcoin Reporter will be conducting and publishing more detailed analysis in the future.

The fundamentals for Bitcoin remain as strong as ever and continue to strengthen with every passing day with more merchants accepting Bitcoin payments and news of Bitcoin related investment funds. Another encouraging sign is the increasing number of Bitcoin related conferences and other events around the world which are always well attended and highly successful.

So what then is holding Bitcoin back from more mainstream acceptance?

The primary factors are awareness, attitude and accessibility. Before the general public will use or at least look at Bitcoin, they need to become aware of it. Unfortunately, although surveys have shown that as many as 70% of people have heard of Bitcoin, many of these have been in the context of negative publicity, notably in the wake of the fallout of the Mt. Gox debacle. The government controlled mainstream media has been generally negative to hostile towards Bitcoin, with a widespread perception that if is a scam, ponzi scheme and so on. So clearly Bitcoin has a public relations mountain to climb before wider usage begins to accelerate.

Accessibility involves making it as simple as possible for people to acquire and use Bitcoin securely. These are all areas that are lacking at this time. There are few exchanges, especially in the USA which is potentially the largest Bitcoin user base. With the very negative attitude arising from the Mt. Gox situation, exchanges will need to improve their reputation dramatically in order to give people the confidence to use them.

The future however must be with the Bitcoin ATM which most people can much more readily relate to and and being simply a benign piece of equipment are much easier to trust. Widespread ATM deployment will not only simplify exchange and make it more accessible, but will also greatly increase awareness and acceptability, so Bitcoin ATM's really are a fundamental technology for the future.

Beyond acceptance comes usability. Bitcoin is still firmly within the realms of the enthusiast who has the technical ability to manage wallets and execute transactions. Even so, thousands of Bitcoin are being lost due to mistakes and negligence, or through theft due to hacking, computer trojans etc. and this is among technically oriented users.

Before Bitcoin can and will become mainstream it needs to be a simple to use as a credit card and secure enough not to lose Bitcoin due to accident or theft. While 2FA - two factor authentication - and multi-signature are excellent developments, they are beyond the scope of non-technical people. The future lies with mobile devices and in particular hardware wallets such as the Trezor, and wearable Android based devices with push button ease of use. Even so, users will need to be educated about backing up wallets in case of theft, loss or damage to Bitcoin devices, as well as computer based wallets.

Bitcoin is still where the Internet was 15 years ago, but on a much faster growth curve. Within 5 years all of the above mentioned factors will have been addressed and Bitcoin will likely be at the very least the de-facto exchange of value on the Internet, if not replacing many fiat currencies altogether. Investment should therefore be seen in that context - not where Bitcoin is tomorrow or next week, but where it will be in 2, 3, 5 years time.

Bitcoin Market Outlook

bitcoin year to date 29 april2014

The Bitcoin exchange rate remains firmly in a long term down trend due in no small part to the events in China. While these will hopefully run their course soon, sentiment has taken a big knock. With selling value value orders buying value value orders by a factor of two to one, market weakness looks set to continue.

In order to break the down trend the exchange rate needs to return to the crucial $500 current fair value level above the trend line, consolidate - as it was for a week before the latest wave of news and rumours from China - and then begin a new phase of the long term bull market. 

What the market really needs now is an end to the China effect, ideally with the end of the spate of new and rumours, so that confidence can return and with it more positive and bullish sentiment. There is no shortage of buyers once the market overcomes the current weakness and begins a definite long term up trend. The only question is how long it will take for this process to play out, and how far will the market slide before it does.

With the news and rumours out of China running its course, this process could be a matter of a week or two away. 

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