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Bitcoin Market Report: 3 May 2014

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bitcoin-walletIn the wake of the spate of news out of China, the Bitcoin exchange rate has entered a narrow but robust consolidation range between resistance at $452 and $440. In the absence of news out of China Bitcoin has displayed an impressive attempt to consolidate around the $450 level before making a further move back to $500.

The next few days will reveal whether the breakout from the down trend can occur to move back towards $500 on a new bull market.

Bitcoin chart year to date 3 May 2014

The market action over the last couple of weeks suggests very strongly that the exchange rate wants to consolidate and build a firm base around $450 in readiness for another consolidation at current fair value of $500, and then resumption of the next phase of the long term bull market. If it were not for the most recent news out of China, consolidation at $500, which was strong, may have taken place by now. For now it it has merely been delayed.

As previously reported, the string of news out of China should not have affected the market as seriously it has. The reactions have been largely knee jerk and somewhat irrational. The original position of the Peoples Bank of China has always been the same, that banks in China can no longer accept deposits related to Bitcoin. The market was correct to react to that original news, however since then it has also been reacting to news from Bitcoin exchanges which have run in to issues due to their banks ignoring the official ruling of PBoC. There has also probably been an element of manipulation to drive the exchange rate lower by certain news media outlets and by exchanges releasing information in a less than diplomatic way.

The market can hopefully focus now on the relentless stream of positive news, and ignore anything further out of China which will not be new.

Positive news continues to flow, but is currently being largely ignored by the market. Every day there is news of more support for Bitcoin from prominent personalities, more merchants accepting Bitcoin, more investment in to Bitcoin businesses, and more developments and innovations in Bitcoin related technologies, all of which underwrite the future of Bitcoin and should be getting factored in to the exchange rate. Once market sentiment finally turns around and the emphasis is placed on future potential rather than short term localised news, there will be no shortage of ongoing positive news to move the market upwards for years to come. 

One crucial area of ongoing development is Bitcoin wallets. Although most of these are open source and therefore no profits to be made directly, the Bitcoin wallet is without doubt one of the most fundamental and crucial of all Bitcoin related innovations because it is an enabling technology. Bitcoin wallet technology as it exists today, with all of the security issues, need for cold storage, paper wallets and so on are way too complex for mainstream users. It is like asking the average computer user to use Linux instead of Windows. Bitcoin wallets need to be as simple to use as a credit card and totally secure from loss and theft. Recent security developments such as two factor authentication and multi-signature and in particular the hardware based wallet such as the Trezor with push button simplicity will help bring Bitcoin to the masses. 

Looking at the Bitstamp order book we have total bids of 136,693.67 BTC for a total value of $9,820,641.29 and total asks of 23,290.64 BTC for a total value of $17,435,188.55. It is clear then that while the volume is on the buy side, the value if firmly on the sell side. Before the next phase of the long term bull market can really move in to gear, we are looking for a reversal of this situation.

There is no doubt that there are many large players sitting on the sidelines waiting for a clear sign that the medium term down-trend has been broken and the next phase of the long term bull market has commenced, buying in to the trend. When this happens we can expect the exchange rate to climb rapidly towards the previous all time high.

Bitcoin Market Outlook 

Bitcoin chart year to date 3 May 2014

The market remains in the grip of the medium term down trend with all attempts to turn around being thwarted by China so far. The immediate objective is for the exchange rate to break through the down-trend, which would currently occur around $475, and back to the pre-latest-China news of $500 for further consolidation and base building for the next phase of the long-term bull market. 

The fundamentals remain as exceptional as ever with a relentless flow of positive news from every area of the Bitcoin arena, with the only negative news being the ongoing China situation which has already been massively over-sold. With no negative news on the horizon, China having hopefully run its course, a constant flow of positive news and plenty of buyers waiting on the sidelines, it is only a matter of time before the market reverses its current trend.

The next week will provide more insight in to sentiment and willingness of the market to put China behind it and seize the opportunity to break the down trend, consolidate and move onwards to the next phase of the long-term bull market.

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