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Bitcoin Market Review March 10th

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bitcoin-chart-march.10-smallThe Bitcoin exchange rate has remained remarkably stable for before, during and after the crash of Mt. Gox. Not only does this show that the fall of Mt. Gox has not shaken market confidence in Bitcoin, but that it was also a major contributing factor to the previous levels of volatility in and of itself. Whenever Mt. Gox as the once largest exchange experienced problems, the market price would gyrate wildly.

So what now can we expect of the markets going forward?

bitcoin-chart-march.10

The Bitcoin exchange rate from its beginnings has been largely been a function of normal market dynamics, notable supply, demand and liquidity. The less Bitcoin there are in circulation and available for buying, the more volatile the price will be due to the number of buyers chasing after the same available Bitcoin.  Also of course we may have to remove the 850,000 Bitcoin that Mt. Gox may have lost assuming they are no longer in the network, and therefore with ongoing Bitcoins destroyed it is quite possible that there are only around 11.5 million Bitcoin available at this time. 

Assuming something over 12 million Bitcoin have been mined so far, the question is are most of these Bitcoin freely circulating or are they being purchased and stored as a long term investment.

It seems likely at this stage that Bitcoin buyers are divided between three major groups:

1. Those buying Bitcoin to store and hold for future gain.

2. Those actively trading Bitcoin for short term profits.

3. Those buying Bitcoin as money to purchase good and services.

The relative ratios of these groups of buyers remain at matter of speculation, but how do they influence the market?

Those buying and holding for long term gains will generally add Bitcoin on an ongoing basis as funds become available. There are however investors with considerable capital available who move in to the market and purchase a large quantity of Bitcoin over a short time scale. We saw this over the last week when a large buyer moved the price towards the $700 level before falling back once the buying spree is over. We also saw a similar effect when people in China were purchasing large volumes of Bitcoin some months ago, taking the market to new highs, before dumping them due to the position of the Chinese government.

Those actively buying and selling Bitcoin for speculative purposes certainly form a fairly large proportion of Bitcoin market participants and those most likely to move the price as they react to Bitcoin news and market movements. With relatively few Bitcoin to chase after, and a relatively large number of participants, speculation can certainly move the markets significantly as they all jump on the bandwagon in the direction of the market.

Those purchasing Bitcoin as money to buy goods and services will gradually move the price upwards as increasingly more people become involved in Bitcoin and more goods and services that can be purchased with Bitcoin become available.

Bitcoin Price Outlook

Now the Mt. Gox factor is not longer exerting an influence, we can expect Bitcoin to behave more like a normal currency based upon the usual market dynamics. Any upward rend due to demand will likely be tempered by the ongoing threat of regulation which will dampen the market in a downward direction.

While news that has the potential to dramatically move the market is unlikely, the most likely source of such news would be large retailers announcing that they are accepting Bitcoin which will  increase both interest and demand. If a large retailer such as Amazon made such an announcement  - unlikely in the near future - expect a dramatic upwards influence on the exchange rate. That day will surely come, bur when is anybodies guess.

While there is little or no significant market moving news while the overall trend will be inexorable up over the long term, in the shorter term, during the first half of this year, the market will likely trade between $500 and $750 per Bitcoin, with a range of $600 to $700 likely for March unless there are any dramatic news events, none of which are on the horizon.

While everyone holding Bitcoin wishes to see the price rise as it did last year, price stability is always positive because it encourages more people and businesses to become involved and to save and send in Bitcoin.

The ultimate price of Bitcoin must surely be many orders of magnitude from here, but for now the Bitcoin market is consolidating its gains of the last couple of years.

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