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Bitcoin Market Report: 16 May 2014

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CircleThe Bitcoin exchange rate continues to show impressive resilience as it continues to consolidate between support at $431 and resistance at $452 with a bias towards the upper side of this range. This consolidation phase has been taking place for the last 2 weeks, freed from the negative influence of news  and rumours out of China.

Most crucially. at the time of writing, the exchange rate has nudged above the medium term trend line - a bullish move.

Bitcoin 2 week chart 16 May 2014

 If the exchange rate can continue to consolidate while remaining above the trend line, the stage is set for a new phase of the long term bull market - a scenario that is looking increasingly likely.

Several weeks ago Bitcoin was consolidating nicely at current fair value of $500 before yet another round of rumours and news out of China slammed the exchange rate down to this lower level, where, free of the malign influence of China, it has been able to continue consolidation, eventually poking its head above the medium term down trend. It is increasingly unlikely that, short of an outright ban on Bitcoin, any further news from China will shake the exchange rate. The Chinese government has already made it clear in an official statement that they cannot and will not ban Bitcoin completely, but only regulate the banks through the Peoples Bank of China.

The flow of good news continues each and every day, supporting and underlining the exceptional future of Bitcoin. The general consensus is that Bitcoin will at the very least become the de-facto monetary system for electronic transactions over the Internet, replacing the likes of bank transfers, credit cars and services such as Paypal. Given that online transactions are a already huge at $262 billion for 2013 and growing exponentially, Internet and smart phone based transactions alone guarantee the future of a high value Bitcoin and Bitcoin usage. In reality by the time Bitcoin becomes the de-facto means of exchange of value for electronic  transactions, countless offline bricks and mortar merchants will be accepting Bitcoin as well, making Bitcoin a major global monetary system in its own right. Of course governments and banks will resist this at all costs through regulation and other foul means, because unlike fiat currency which is used for control, they will have little or no control over Bitcoin. 

As a fun statistic, if all online transactions today were monetised in Bitcoin, each Bitcoin would have to be worth around $25,000. With online, offline and smart phone transactions increasingly exponentially, and Bitcoin also being saved etc so not all Bitcoin are in circulation, it is easy to see how Bitcoin could be worth $100,000 in the future based on the stats and math alone. 

One company that looks set to make a big impact in the area of Bitcoin financial services is "Circle" headed by Jeremy Allaire. One of the main features of their services is to become a digital custodian for customers funds. The question is should this be welcomed?

There is an extremely solid and true saying in the Bitcoin community - "if you do not own, hold and control your private keys, you do not own your Bitcoin". This was reinforced in a very hard way for many during the recent collapse of Mt. Gox who have either lost or mislaid hundreds of millions of Dollars in customer funds because Mt. Gox held the private keys. While Circle may be much more professional and well backed than Mt. Gox, they have no control over the government of the USA or any other jurisdiction.  As Bitcoin becomes more widely used and increases in value, the US government will continue to regulate Bitcoin at central locations such as Circle and Coinbase, until they have complete control in that jurisdiction. Further, the US government will no doubt make secret deals with the likes of Circle and Coinbase for sharing of customer data in return for being left alone. Jeremy Allaire has already stated that he sees Bitcoin being regulated in the future. 

This not only goes against the decentralised, peer to peer ethos of Bitcoin, for the people by the people, but also means that neither customer Bitcoin, which could be frozen or seized at will, or customer activities or personal data will be safe. We only have to look at the NSA to see this is true.

The future therefore must lie in fully decentralised Bitcoin peer to peer exchange and also fully decentralised peer to peer shopping through for example the emerging and exciting "Open Bazaar" technology.

Whatever happens the future of Bitcoin has never looked better and gets better each and every day, and this must sooner or later be reflected in the exchange rate.

Bitcoin Market Outlook 

 Bitcoin chart year to date 16 May 2014

Over the last two weeks the Bitcoin exchange rate has been highly resilient, consolidating between support at $431 and resistance at $252 defying any attempts to drive it below support for any time. Additionally the market is becoming stronger as the bulls increasingly take charge.

The most crucial feature on today's chart is the exchange rate poking its head above the medium term down trend line at $447. If the exchange rate can maintain its current strength, and absent any large players who use their weight to smash the exchange rate down again, then a trend breakout will occur heralding the next phase of the long term bull market.

This is the best opportunity the bulls have had for months, and the next week will show if the bulls can make it stick to launch the next phase of the long term bull market.

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