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Bitcoin Market Report: 7 April 2014

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bitcoin-1-month-chart-april-7-smallThe Bitcoin exchange rate has stablised around the $450 level for the last four days or so as it seeks direction. Over the next couple of days the market will, if continuing as it is now, see the conjunction of the 50 SMA and 200 SMA known as the "death cross". In more established and liquid markets this is a very bearish trend convergence signalling a further slide in the market. This signal is a first for BTC however so still remains to be seen.

It is clear however that this week is pivotal for market direction.

bitcoin-1-month-chart-april-7

For many weeks now the market has reacted downwards to negative news and largely disregarded a steady daily flow of positive and sometimes very positive news. This demonstrates that traders are more preoccupied with news that could send the market downwards than positive news having the opposite effect. From a sentiment perspective, this means that market participants have no confidence in the BTC exchange rate at these levels, which has been reflected in ongoing price weakness.

This last few days of price stability then has little or nothing to do with improved sentiment, and everything to do with the fact that there has been no negative news, notably out of China, to send the exchange rate lower. 

While a period of price stability is welcome, the market remains very vulnerable to any negative news, with no amount of positive news likely to alter sentiment for the better.

What then does this mean in practical terms?

It means quite simply that market participants are not confident to commit in volume at these price levels, fearing a further fall in the price. Any positive news is inconsistent with this feeling and is ignored, while any negative news serves to justify the fears and sends the market down. This trend will continue until a price level is reached that once again restores confidence in profitable upwards direction trades.

While the Bitcoin Reporter polls consistently show a bullish sentiment with traders buying BTC at these levels, it seems likely that the amount being purchased is relatively small, with the sellers trading in the higher volumes having the say and upper hand.

How do traders feel about the need for a capitulation as a prelude to consolidation and next leg of the bull market? Bitcoin Reporter held a poll asking voters this question.

bitcoin-poll-market-capitulation-7-april

As can be seen, 63% of voters do not feel a price capitulation of $100 or so of the current exchange rate would be beneficial, whereas 37% did. Of course this is sentiment, not intent, but 37% feeling that a market capitulation would be beneficial is a very significant percentage, especially considering overall market weakness.

Bitcoin Market Outlook

bitcoin-6-month-chart-april-7

The main feature on the 6 month chart now is the impending convergence of the 50 day moving average down through the 200 day moving average, known as the "death cross" by chartists, and usually the harbinger of a further market slide which could take as much as $100 off the exchange rate.

It should be noted however that this is usually observed in much larger and more liquid markets, and has never been tested before in the BTC market, so this will also be a test of how well the Bitcoin market actually relates to other markets on the charts.

Overall the last few days does seem like the calm before the storm. The market is holding not on positive sentiment but on the lack of negative news which makes the market very vulnerable to further weakness. 

If, as seems likely, traders do not feel confident at these levels, then the "death cross" will justify itself with the market sliding to a level where traders feel they can buy BTC with confidence again.

The next few days should show where the market wants to be, but does not seem inclined to be higher. 

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