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Bitcoin Market Report: 07 May 2014

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bitcoin-cafeThe Bitcoin exchange rate is really struggling to hold on to the last support level of $431, trading at exactly that level at the time of writing. On the 6 May the price slid to $420 but managed to claw its way back above $431, the last key support level. 

If the exchange rate fails to hold $431 and move on to climb out of the danger zone, then it is a case of "watch out below" as the exchange rate could slide below $300 and as low as $250 before finding further support and potential to form a new base.

 Bitcoin 7 day chart 7 May 2014

With a constant flow of good news and China almost behind the market, with the exception of another announcement on 10 May, from a fundamental perspective there is no apparent reason for the market weakness apart from an unwillingness to commit.

One of the fundamental principles of trading any financial instrument is "the trend is your friend", in other words trade only in the direction of an established trend. Bitcoin has been in the grip of a down trend for several months now with no sign of turning, with the exception of strong consolidation at $500 which could have been the turning point if it were not for the news out of China. The market firmly favours traders shorting BTC against the down trend which is most likely to be the main reason for the ongoing price slide. Of course this feeds on itself as the cycle of selling continues.

The good news is however there are relatively few traders interested in selling Bitcoin short, the majority simply buying in to or selling out of Bitcoin to own it. When the trend does turn upwards there will be much more momentum as traders and investors move off the sidelines and buy BTC as opposed to the few selling it short.

The big question is, what will it take to break the medium term down trend so that consolidation can take place and a new up trend begin? 

The fundamentals for Bitcoin are exceptional and improving by the day, with an ongoing flow of new merchants accepting Bitcoin, investments in to Bitcoin related business and Bitcoin investment funds, ongoing deployment of ATM's, successful conferences and media events and so on.

So the stage is set for a powerful up trend that will take Bitcoin to new highs, but only when the medium term down trend is finally broken.

Bitcoin Market Outlook

Bitcoin chart year to date May 7 2014

The medium term down trend remains firmly in place pending the catalysts, conditions and sentiment necessary to end the bear market and begin what could and should be a new strong phase of the long term bull market.

The next week could be crucial with more news due out of China on 10 March, and the exchange rate fighting to remain above the last near support level of $451. If $451 fails to hold for any reason it is "watch out below as the exchange rate could easily slide through $300 and could go as low as $250. 

With the sellers and short players still in control, driving the exchange rate ever lower with the trend, a major catalyst is needed to break the impasse. Perhaps the news out of China on 10 May could be that catalyst by putting the China factor behind the market once and for all.

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