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Bitcoin Market Review: 20 March

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2-month-bitcoin-chart-march-20The Bitcoin exchange rate continues to consolidate the gains of the last 6 months, with a lower bias due to lack of price moving news. While those holding Bitcoin as an investment or for speculation may be disappointed by the apparent lack of progress, the reality is that when the price spiked to over $1000 it was an anomaly which is now being corrected and should be seen as positive.

More important is the overall trend and the longer term outlook for the Bitcoin price as opposed to shorter term fluctuations.

 10-day-bitcoin-chart-march-20

The Bitcoin exchange rate would no doubt have continued its consolidation between $620 - $640 if it were not for the situation with blockchain.info around the 17 and 18 March where the web based service was totally unavailable for a couple of days meaning users of the largest web based wallet service could not access or transact Bitcoin unless they had a backup of their private keys to import in to the Multibit software wallet. 

If we look at the above 10 day chart we can clearly see that as the blockchain.info service difficulties continued, Bitcoin volume increased considerably, coinciding in a price slide from around $625 to a low of $600. As the Bitcoin.info service was restored we can see the selling volume immediately tapering off towards previous levels, leaving no doubt that the Blockchain.info difficulties were the cause of this price fall in the absence of any other market moving news. So why did the market behave this way?

No one doubts the integrity, honesty, professionalism and technical competence of Blockchain.info as a service and group of people, which was reflected in the highly professional way in which a very difficult situation was managed and users kept updated through their blog and the Bitcoin sub-Reddit.  Indeed it was an excellent example of customer service even though they do not charge for the service.

The Bitcoin exchange rate fell due to to two fundamental factors - uncertainty and fear. During the recent Mt. Gox collapse numerous users collectively lost hundreds of millions of Dollars. Blockchain.info is one of the largest if not the largest web wallet service, almost certainly looking after many millions, tens of millions or possibly hundreds of millions of Dollars in Bitcoin deposits in wallets they manage.

While Bitcoin.info relentlessly and correctly point out that wallets and private keys can and should be backed up, and can be restored in to the Multibit software should their service become unavailable, the reality is that very few users would do this. The average user is the type that never backs up their valuable computer data believing that the computer will run forever - until the mechanical hard disk inevitably fails. Many Blockchain.info users are probably no different - they never backup their wallets believing that the service will always function flawlessly and their Bitcoin will always be available. This last week proved otherwise and no doubt will again in the future as DDOS and hacking attacks accelerate with the popularity of Bitcoin.

So it was the sudden realisation that even a respected service like Blockchain could fail with countless Bitcoin at risk that caused further uncertainty compounding on Mr. Gox that caused a sell-off of Bitcoin and the price to fall over $20 as a result. This was actually a modest fall  - not many months ago the fall would likely have been at least $100 which shows just how resilient and comparatively stable the market has now become.

A secondary influence is the rise of the altcoin Litecoin which is reaching new highs and being more widely traded, with new exchanges opening. With Bitcoin stuck in a trading range it is likely that some traders are selling Bitcoin and buying Litecoin as a better speculative vehicle.

Bitcoin Market Outlook 

 6-month-bitcoin-chart-march-20

Over the last year and six months in particular, Bitcoin has been extremely volatile due in part to the ongoing issues at Mt. Gox, and in particular due to a dramatic price spike in November due to heavy buying by the Chinese which saw the price reach around $1200, double where it is today.

Later when the Chinese government stepped in to regulate and restrict Bitcoin trading, the market fell almost 50% back to the $600 before recovering back to the $1000 level. This was however a bounce which has since corrected to the $600 to $700 level.

More recently we saw the collapse of Mt. Gox during which the market remained remarkably stable and has ever since, which is actually a great milestone for Bitcoin, which is now behaving more like a real financial instrument and no doubt will continue to do so based on normal market dynamics. This in turn will encourage more merchants to accept Bitcoin for payments.

If we look at a 6 month chart for Bitcoin as above, and then smooth out the volatility with a 6 month moving average, we can see that the overall trend is very much upwards.

As Bitcoin becomes more popular, more merchants accept it, and consequently the competition for available Bitcoin increases, the Bitcoin exchange rate will reflect this implying a price in the years to come of many orders of magnitude higher than today, and is therefore likely to be an exceptional long-term investment  - assuming Bitcoin itself survives as the de-facto global crytpo-currency, which no doubt it will due to the momentum behind it.

The chart implies that Bitcoin is consistently adding around $100 each month which is what would be expected as more people and businesses become involved as well as ever increasing investment in to Bitcoin related companies.

Most notably, the Bitcoin exchange rate has converged on the almost linear 6 month moving average which bodes very well as a price platform for the price to move forward from here.

There will of course be peaks and troughs due to ongoing events, but for now it is reasonable to maintain an average appreciation of $100 per month, targeting new highs by the end of the year, and still an exceptional investment by any standards, and one that cannot be bettered by any other financial instrument - or likely to be in the future except for possibly another crypto-currency such as Litecoin. 

Note: The foregoing represents our own analysis and opinions, and in is in no way intended to be investment or financial advice of any type.

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