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Bitcoin Market Report: 9 May 2014

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bitcoin-decentralisedAfter sliding well below the $431 support level for a time on 6 May, the market staged an impressive recovery back above the support level, and went on to test resistance at $452. Since then BTC has been meandering between support and resistance in an impressive show of resilience and increasing volume.

Although the medium down trend remains in place until it is formally broken, which would currently be at around $450, the market is currently showing reluctance to trending any lower.

Bitcoin 7 day chart 9 May 2014

There was a time on 6 May when the exchange rate had broken well below support at $431, on the precipice of plunging much lower, below $300 and possibly even as low as $250. A very strong wave of buying came in to the market on 7 May, lifting the exchange rate all the way back to the exact resistance level of $452. Since then the exchange rate is forming a new range with interim support at $439 and resistance remaining at $452.

The new strength in the market is particularly impressive considering there was news from China of two more exchanges having banking facilities relating to Bitcoin restricted, with a final deadline from the Peoples Bank of China to be in full compliance by 10 May. In past weeks this news would have shaken the market, but this time it had almost no effect whatsoever. If the 10 May deadline by PBoC comes and goes without further market reaction, it is reasonable to conclude that the China effect that has blighted the Bitcoin market for so long will finally be over and behind the market. 

Elsewhere the positive news continues to flow unabated on all fronts. While we cannot know the precise implications of each individual piece of news, taken collectively the future of Bitcoin is being reinforced on all almost fronts. The notable area where considerable work needs to be done is in mainstream consumer awareness. While a few months ago the general public was prepared to be open minded about and even welcome Bitcoin, the Mt. Gox debacle and the extremely prejudiced and inaccurate mainstream media reporting that followed it seriously damaged the credibility and public opinion of Bitcoin generally. Consequently Bitcoin largely remains in the hands of the original loyal following who are much more technically able to understand and use Bitcoin.

Before Bitcoin is ready for prime time and the mainstream various issues need to be addressed and are being addressed. The main ones are these:

1. Ease of use: The general public are not technical and have no wish to be technical. Only a minute percentage of people can use a personal computer to its maximum capability, the majority content to know how to switch the PC on, surf the web and load and use a few programs in a basic way. Bitcoin must be at least as simple to use as online banking, Paypal and in particular a credit card with all security in place. Most wallets today are too complex for the majority especially with the need for two factor authentication, multi-sig etc. There is a big future for Bitcoin enabling companies and technologies such as for example the Bitcoin hardware wallet Trezor, a forerunner of such technologies. The general public are also extremely lax when it comes to backing up valuable data, often losing it sooner or later due to hard disk failure for example, so secure and simple backing up of wallets and Bitcoin related data also has large growth potential.

2. Security: This is a huge issue with Bitcoin stealing trojans appearing at an alarming rate. Bitcoin is frequently being stolen from even experienced users, so the general public have no chance unless Bitcoin is made theft proof and simple to use at the same time. While "two factor authentication" and "multi-signature" are viable solutions, they still need to be usable by the majority, which again is where hardware solutions such as the Trezor come in.

3. Exchange: Bitcoin needs to be able to be exchanged easily to and from Bitcoin and fiat currency as easily and conveniently as other currencies. Bitcoin exchanges are probably not the future therefore but an interim solution. The future must be in decentralised peer to peer exchanges and in particular Bitcoin ATM's. Exchanges may still have a role in corporate type services.

Bitcoin Market Outlook

Bitcoin chart year to date 9 May 2014

The market remains in the grip of the medium term down trend characterised by most players sitting on the sidelines and leaving BTC at the mercy of the short traders selling in to the down trend. 

All it will take is the down trend to be broken to cause the shorts to cover Once a new up trend is established the previous short players will go long, and all those sitting on the sidelines waiting to buy in to the next phase of the bull market will do so. Taken with the ongoing flow of positive news it is quite likely that once a new bull market is established the exchange rate will move upwards rapidly, reclaiming much of the ground lost to the bears this year.

On the charts, the $450 area has now assumed even more significance, now being not only the resistance level, but also the point at which the exchange rate can break up through the trend line.

$452 is therefore shaping up to be the last major battle ground between bulls and bears, the prize being a new dynamic phase of the long term bull market. This next week will be crucial in this process. 

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