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Bitcoin Market Report: 12 May 2014

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bullish-bearishDespite valiant efforts to break the medium term down trend, the Bitcoin exchange rate is still oscillating between resistance at $452 and support at $431.

As mentioned in our last report, $452 was significant for two main reasons - strong resistance and the level at which the medium term down trend could be broken. Bulls and bears battled it out to capture this important position, but in the end it was the bears who proved the stronger, not being willing to relinquish their grip.

Bitcoin 7 day chart 12 May 2014

Had the exchange rate been able to break above the medium term trend line at $452 and hold above that level, the bulls would have had the high ground necessary to launch a new phase of the long term bull market.  For a while on 11 May the Bulls had their way and nudged the exchange rate above resistance and the trend line. The celebrations were short lived however as a wave of much higher than normal sell orders plunged the exchange rate back towards support at $431 which is proving to be very resilient. 

Since then the exchange rate has bounced back, but now trading nearer support than resistance on better than normal volume.

The good news is that yet another deadline from the Peoples Bank of China came and went on 10 May without much if any market reaction, so hopefully the China effect, and in recent weeks the biggest burden on the market is well and truly history.  

With the burden of China now more or less gone, what will it take as a catalyst for the next phase of the bull market?

The catalyst must be a change of sentiment. Until now the market has completely ignored an ongoing stream of extremely positive news and focussed almost exclusively on just one negative influence - China. This has been a classic bear market where the bears have used every excuse to sell Bitcoin while the bulls sit on the sidelines wondering when it is all going to end and what it will take.

Aside from the bulls and the bears trading on sentiment we also have the professional players who are neither bulls or bears but simply want to be on the winning side of the market no matter what. They are trend players who will sell the market short in a down trend and buy the market long in an up trend. One these players see that the trend has turned, they will reverse their positions - in this case go long BTC. The catch-22 however is that due to the lack of liquidity in the Bitcoin market, the professional traders are influencing the market and maintaining the down trend, and even manipulating the market, which could not happen in more liquid markets such as forex. So due to the lack of liquidity, Bitcoin is somewhat of a unique case.

A major change in sentiment is going to be required to break the medium term down trend for long and convincingly enough to to cause the shorts to cover and go long thus acting as a catalyst for the next bull market.

In the absence of negative news and the ongoing flow of positive news on all fronts it is really a "war of attrition" which sooner of later, over which the bulls will prevail. 

Bitcoin Market Outlook

Bitcoin chart year to date 12 May 2014

 As can be clearly seen on the medium term chart, on May 11 the market made a valiant effort to break through resistance and the down trend line at $452, and succeeded for a while until a wave of sellers aggressively pushed the exchange rate back down to support at $431.

The immediate task of the market is to consolidate between support and resistance ready for another assault on the trend line which is currently at around $450. Barring any major negative news and supported by an ongoing flow of positive news, this is the most likely scenario, with the next few days providing further clues.

A major wildcard is the drastically worsening situation in the Ukraine which is in the verge of civil war with the illegal coup installed junta government supported by the West currently attacking their own citizens with considerable destruction and loss of life. This situation has the potential to become a wider conflict - let us hope not - in which case Bitcoin could join Gold and Silver as a safe haven against the Dollar. 

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