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Bitcoin Market Report: 9 April 2014

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bitcoin-1-month-chart-april-9-smallThe Bitcoin exchange rate has been holding steady around $450 for several days now against a backdrop of low volume and no market moving news. Overall the market has a definite "calm before the storm" atmosphere as if in a holding pattern ready for a catalyst to cause a break in the price one way or the other.

As has been the case for weeks now, a constant stream of positive news fails to impress the market while any negative news causes the exchange rate to react in a southerly direction.

bitcoin-1-month-chart-april-9

The biggest catalyst for downward exchange rate movements, the same recycled regulatory news out of China has been absent for the last week or so, along with any other significant negative news is giving the market some welcome breathing space. 

Volume is the other ominous factor. The market slides on higher volume on any negative news, but churns along on low volume in the absence of news, with a slight bias in the upwards direction. This implies that while traders are happy to buy BTC at these levels, the major players, the so called "whales" are sitting on the sidelines until further direction can be established. Even when a whale has moved in with large buys and moved the market upwards towards $500, it soon languishes back down to the $450 level.

The current exchange rate while being supported by bargain hunters is extremely vulnerable on several levels. First of all sentiment is clearly indicating that volume traders are not comfortable buying at these levels and are looking for the market to go lower before committing. While no positive news is apparently good enough to encourage volume buying, negative news, especially out of China easily results in volume selling and  price slide.

On the charts we have the imminent convergence of the 50 day SMA with the 200 day SMA, a formation known as the "death cross", which in liquid markets is the harbinger of a further significant price slide and very bearish sentiment. The death cross has never been tested before in the much less liquid and unpredictable Bitcoin market, so it remains to be seen if this indicator is a prelude to a price slide - all other factors being in place.

There has been little major news over the last couple of days that could potentially influence the market. Recently an SSL vulnerability was announced in the OpenSSL protocol called "heart bleed" which potentially represented a considerable security risk. All parties concerned including exchanges and wallet services were quick to either apply the patch or assured users that they were not affected, so a crisis was averted.

Total confusion and lack of consistency among country regulators continued with the Netherlands deciding the Bitcoin is a "technology" not a currency, following the USA ruling that it is "property" not a currency, and the UK taking a very sensible and welcome position that Bitcoin is indeed a currency and therefore not subject to taxation. While this lack of consistency continues around the world as to how to regulate and tax Bitcoin, global acceptance will be held back. Ultimately of course Bitcoin should be neither regulated or taxed - it is an asset of the people for the people and should be free of the same external control or interference that makes such a mockery of fiat currency as well as fiat being used as an instrument of control and oppression. Bitcoin enforces personal responsibility which is a good thing along with the privacy and freedom that goes with it.

Some hope emerged yesterday with news that US Congressman Steve Stockman of Texas is preparing the "Virtual Currency Tax Reform Act" which will reclassify Bitcoin as currency as opposed to property. Should this pass it would be extremely good news for Bitcoin, which has currently been killed completely by the recent IRS ruling for use as currency in the USA and weighing heavily on both sentiment and the exchange rate.

The most influential news factor is the ongoing regulatory situation in China which has so far been based mostly on hearsay and recycled rumours the most pervasive of which is that the Chinese government will ban all Bitcoin transactions on April 15. By April 16 the market will hopefully be able to put China behind it completely.

Bitcoin Market Outlook

bitcoin-6-month-chart-april-9

The main feature on the 6 month chart is the convergence of the 50 day SMA and 200 day SMA known as the "death" cross. In more liquid markets this is seen as a very bearish indicator and the harbinger of further price weakness. The Bitcoin market is much less liquid however and conforms to dynamics that do not apply in other markets, so it remains to be seen if this indicator holds good for BTC. As with all indicators it is not like pulling a trigger as soon as the indicator occurs. It is simply giving notice of impending change in the market direction in the near future.

The fundamentals do support the chart however with the market much more willing to go down than up. It would seem likely that a market capitulation to a lower level might be just what is needed to restore buying confidence and the next leg of the bull market.

The next few days will provide further insight in to where the market wants to be. On a positive note, the longer the market can hold on to and consolidate around the $450 level, the less severe any price slide will be, and could, if continues long enough, form the basis for the next leg of the long-term bull market.

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