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Bitcoin Market Report: 15 April 2014

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bitcoin-exchange-newsAfter bouncing back to $450 following the announcement by China that Bitcoin would not be totally banned after all, the exchange rate re-tested the $400 level. In the last market report Bitcoin Reporter noted that market conditions looked more bullish following clarification of the Chinese situation, and that the exchange rate needs to climb back around $500 to consolidate.

The market is trading at the crucial $512 level, around current fair value, where consolidation can take place for the next bull run.

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Last week Bitcoin reported suggested that the following week, this past week, would be pivotal for the exchange rate, with the fulfilment of the 50/200 SMA "death cross" and ongoing rumours and news out of China against a backdrop of an already weak market where sellers had the upper hand.

And so it transpired in what has indeed been a dramatic and pivotal week first with the news that the Peoples Bank of China had banned cash deposits against Bitcoin, followed by a statement that China had no intention of banning Bitcoin altogether. This second piece of news was enough to bounce the exchange rate from a low of around $350, which coincided with the convergence of the 50/200 SMA "death cross" on the charts, before bouncing back to $450 on the latest news from China. The market since successfully re-tested the $400 mark which gave it the confidence and momentum to make a successful run for $500.

If the exchange rate can hold on to current fair value of $500 and consolidate for possibly weeks, then market will be well positioned for the next phase of the bull run.

There has been little to report in the way of market moving news over the last 2 days, which has allowed the market the breathing room needed to regroup for another upwards move.

As mentioned in the last report, sentiment is definitely more positive now that the Chinese news has just about run its course. With no further potential negative news of that level on the horizon, and with an ongoing flow of positive news supported by positive sentiment, the outlook for the market looks much more positive than this time last week, providing a solid basis for consolidation and new phase of the bull market.

Regardless of short term sentiment, longer term sentiment for the remainder of the year is most definitely bullish as was apparent from the latest Bitcoin Reporter Poll which has received 650 votes at the time of writing. Voters were asked whether they felt that the Bitcoin exchange rate will make a new all time high this year.

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 71% of voters feel Bitcoin will make a new all time high in 2014

29% of voters feel Bitcoin will not make an all time high in 2014

 

This is clearly a very bullish result with over two thirds of voters feeling that the Bitcoin exchange rate will make a new all time high this year and an indication of very positive sentiment generally.

In addition to sentiment and an ongoing flow of positive news, there are also more fundamental factors that may be overlooked but nevertheless need to be taken in to account.

One of the most basic dynamics of any market price is supply and demand. With regards to supply, there are probably much less Bitcoin in circulation than is generally believed, and this is almost certainly poised to be even more the case moving forward.

At the time of writing there have been 12,650,675 Bitcoin mined in total. Of these 650,000 or so are tied up in the Mt. Gox debacle, leaving around 12 million Bitcoin potentially available.

While many Bitcoin are freely circulating, being traded and actively used for transactions,  it is highly likely that the majority are out of circulation, being used as a future investment or store of value. It was estimated that this applied to 78% of Bitcoin in 2012. Since then Bitcoin mining has become more efficient and commercialised thereby minting exponentially more, but offset by an exponential increase in mining difficulty.

Another offsetting factor for the number of Bitcoin in circulation is the rapid growth of Bitcoin investment funds which are taking millions of Dollars of Bitcoin out of circulation as a basis for their funds. With these and other factors, it is almost certain that more Bitcoin are out of circulation due to storage than not, our current estimate being around 5 million Bitcoin actually available for purchase and trading.

It is likely that in the immediate future, during 2014, the number of Bitcoin in circulation will reduce rather than increase. Mining difficulty has increased exponentially, 30 day increasing 44%, 60 day increasing 133% and 90 day increasing by 242%. As a result, miners are hitting the buffers on several levels.

1. ASIC technology used to make mining hardware is nearing the immediate levels of technology.

2. Cooling mining data centres is becoming a major issue logistically and financially.

3. The cost of mining is becoming unprofitable at current Bitcoin prices, with some miners using more electricity than a small town.

As mining hits the buffers, mining difficulty will automatically reduce to compensate, but due to the number of competitive miners with existing resource this will only maintain the status quo, so that the number of Bitcoin mined over time will become much more constant instead of exponentially increasing this limiting circulation.

In addition, Bitcoin funds are on the increase, taking more Bitcoin out of circulation, so it is likely that the actual growth of Bitcoin in circulation will be moderated or even become fairly static, which will be positive for the exchange rate due to supply and demand.

Bitcoin Market Outlook 

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Bitcoin Reporter has very accurately predicted the market including the $100 slide on the 50/200 SMA "death cross", the subsequent rebound, and the move to $500, estimated current fair value, so what next?

If the market can continue to consolidate around $500, current fair value, then this is an excellent and very solid platform as the basis for a resumption of the bull market. To hold these levels for at least the next week or two sentiment must remain positive with the market finally reacting to the flow of positive news while not over-reacting to negative news which must be placed in a proper context. 

It is difficult to see any news so negative as to shock the market, but anything can happen.

The current wild card is the worsening situation in the Ukraine which is being engineered by the "West" for geo-political hegemonic gain and to financially keep the military-industrial complex alive after the failed attempt at subverting Syria and with Afghanistan coming to an end.

If Ukraine does escalate in to civil war, which seems increasingly likely, Russia will have to become involved to protect the integrity of its own borders, of Russian nationals, and of the Ukraine population generally. The US and EU know this very well and are playing a dangerous game. If this happens the situation will be extremely serious to say the least and we an only hope that common sense and restraint prevails - which it hasn't in the past.

Gold and Silver have been traditional safe havens from world situations such as this. Bitcoin is also well poised to assume that role as well. In addition the US Dollar is an accident waiting to happen in a spectacular way, along with the global financial system, and a conflict such as this where oil etc is ceased to be settled in Dollars could finally collapse the currency altogether.

Overall market sentiment has improved considerably and this could well allow Bitcoin to consolidate around current fair value of $500 before the next leg of the bull market commences. 

If Ukraine escalates then Bitcoin could see a dramatic rise very quickly, with those voting for the exchange rate making a new all time high this year getting their wish.

Vote In The Poll

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