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Bitcoin Market Review: 27 March

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bitcoin-6-month-chart-march-27-smallThe recent tax ruling by the IRS failed proved to be a double-edged sword for the exchange rate, failing to move the market significantly one way or the other. On the one hand actually getting a tax ruling from the IRS for USA based users removed that element of uncertainty from the markets, while the implications of the ruling raise questions about the ability of Bitcoin to become mainstream in the USA in the longer term.

Overall the market is trading sideways with a bearish emphasis.

bitcoin-10-day-chart-march-27

The Bitcoin market remains weak with sentiment biased towards the negative side of the market than the upside, with any negative news more likely to move the market down, rather than an ongoing stream of positive news that fails to make an impression.

Negative news spooked the market today after new rumours out of China relating to Bitcoin banking restrictions against money laundering, criminal activity and price volatility risks sent the exchange rate sliding further, adding to existing price weakness. There has been no official confirmation out of China, but even if the rumour proves false the damage to sentiment has already occurred - which may have been the motive behind the rumour.

On the short-term 10 day chart, the 50 day moving average has turned upwards over the last 3 days or so towards the 200 day moving average, before flattening and resuming a negative direction. If the 50 days moving average can find some strength to cross above the 200 day moving average it signals a potential break to higher levels towards $600 and beyond.  That said, with the IRS ruling having flattened out the progress of the 50 day moving average,  prospects for such a bullish convergence look slim.

Overall this week so far the market has remained range bound but now with a lower emphasis, oscillating higher and lower between the range price band before moving to a lower band today. The exchange rate is back in the $550's with any further weakness likely to be carried through below the $550 level.

The apparent indifference in the market is probably due to the same players - those surviving Mt. Gox - either holding Bitcoin and not trading pending and reserving further buy orders for when the up-trend resumes, or selling in to the price weakness with view to buying when the up-trend resumes. This is also indicated by recent polls conducted by Bitcoin Reporter.

In the short term it seems likely that the market will continue with a bearish, weak emphasis, drifting lower towards $500, until new serious buying power or exceptional news brings in more participants on the buying side, acting as a catalyst for those sitting on the sidelines to buy in to an up-trend. Under current conditions and regulatory environment it is difficult to see where this new buying support will come from, with sellers making the most impact.

Update 13:00 UTC: The exchange rate later did indeed slide below $550, signalling further weakness and lower sentiment, as the exchange rate stands at $540 heading towards $500.

Longer Term Prospects

bitcoin-6-month-chart-march-27

On the 6 month chart the bearish convergence of the 50 day moving average down towards the 200 day moving average (purple) continues. If the 50 day moving average crosses down through the 200 day moving average, then over the following weeks and months the exchange rate would be set to fall by a further $200 or so towards the $350 range, taking out the exponential gains and excesses of the Mt. Gox days, and overall finding a realistic platform from which to move forward from a solid base for the rest of the year and beyond.

While this may upset people holding Bitcoin, especially from much higher price levels, the Bitcoin price should not be reacted to on a day by day, week basis, but on a minimum 6 to 12 month view, and indeed for years beyond that. If a an exchange rate fall to $350 provided a solid platform to reach new highs this and every year for many years to come, then surely this would be a very positive situation, with Bitcoin quite likely to approach or exceed the previous high towards the end of the year.

What the market needs to make further significant progress is new money buying Bitcoin in volume. This can be a few very large investors or numerous smaller investors coming in to the market. How likely is this to happen?

It seems likely that Bitcoin investors with serious funds to invest, meaning millions of Dollars, are no longer investing directly in BTC, but in Bitcoin companies, the future IPO's, one or more of which could be the next Bitcoin equivalent of Facebook or Google.  The potential rewards are extremely high but so are the risks. It is however extremely positive for the long term success of Bitcoin that this investment is taking place and accelerating.

Notwithstanding the positive spins on the IRS ruling that Bitcoin is to be taxed as property, this ruling must be a very negative development for US citizens subject to this tax, and especially for mainstream acceptance. Buying goods and services should be pleasurable, easy and stress free as it is with cash or cards. If everyone from young to elderly people are expected to perform a major book keeping exercise for every single purchase of goods, services and Bitcoin, then it ceases to become pleasurable, easy and stress free, instead to become a chore, time consuming, difficult and stressful experience. No one will ever like Bitcoin over Dollars enough to tolerate that sort of ongoing daily burden no matter how optimistic people are to the contrary. 

This of course is the real agenda of the US authorities behind this ruling - to prevent Bitcoin competing with, and becoming preferred over the US Dollar and the control over people and the world it gives those in control.

Dollar protectionism to maintain the the false illusion of value is a central US government policy. This is why they spend countless billions of printed Dollars selling paper Gold at Comex, London and Asia, to suppress the price of Gold to make the Dollar look worth something - which it isn't. Every ounce of Gold ever mined has been sold over 100 times, and now physical Gold has mostly gone to Russia and Asia. When there is no more physical Gold in the Comex and London warehouses - within months - there will be a major crisis from which both Gold as well as Silver and Bitcoin would benefit.

Of course there is the rest of the world such as the UK for example where the tax authorities have declared Bitcoin as currency and not subject to taxation of any sort and therefore completely open to mainstream acceptance.

Overall, taking Bitcoin on a global basis, the IRS ruling will suppress Bitcoin mainstream acceptance in the USA, but with professional big money participation and the remainder of the world, Bitcoin will move forward to new highs, albeit at a slower pace. Ultimately the IRS and regulators will lose control and/or be forced to re-classify Bitcoin as currency - or money - which it rightfully is or lose out altogether as global participation and technology subsumes it.

As always by far the biggest wildcard is the extremely serious, terminal in fact, financial and economic status of the major countries, currencies and banking systems of the Western world. When this whole illusion/delusion finally collapses, Gold, Silver and Bitcoin will be the safe havens for wealth. No one knows when this will be, but that day is certainly not too far away. 

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