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Bitcoin Market Report: June 3 2014

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bitcoin-connected-worldBitcoin Reporter reported two weeks ago that the medium term down trend had been broken, and that a new phase of the long term bull market is about to begin. Bitcoin reporter also reported that the new up trend is likely to be steep, which has proven to be the case exactly. The new phase of the long term bull market is still in its early stages however, and from a technical position will not be confirmed until the exchange rate reaches around $750. The market continues to move on higher than average volume.

Bitcoin 2 week chart 3 June 2014 

Although the flow of positive news for Bitcoin continues unabated at every level, from new high profile merchants, venture capital investment, public awareness, technological innovation etc, it is pure momentum driving the exchange rate now, as increasingly more traders and investors jump aboard the bull locomotive. The market is currently oscillating between over-bought and over-sold as can be seen from the RSI.

While it is highly unlikely that the market could be upset by negative news as it has in the past, the biggest single issue, and criticism, facing Bitcoin is lack of relative liquidity which not only causes volatility in the form of wild price swings, but also enables large players to influence and therefore manipulate the exchange rate. While this may be true, it is also true that with so much momentum behind the market the money is to be made by simply buying and holding. 

Sooner or later the current momentum will drop off as traders and investors are fully committed to the market, with falling volumes. This is when the market becomes attractive for manipulation as a way of extracting further profit. As the exchange rate of Bitcoin increases, manipulation will be come less and less of an issue as increasingly more capital will be required to move the market. The exchange rate would need to be orders of magnitudes higher than it is currently however, unlikely for another year or two at least. 

One of the biggest barriers to wider-scale uptake of Bitcoin among both merchants and the mainstream public is volatility. Whether a consumer holding Bitcoin for the purposes of purchasing goods and services, or a merchant accepting Bitcoin as payment, large price fluctuations make it very difficult to price goods and services and to assess market value, and therefore holding Bitcoin becomes an unacceptable risk that does not apply to fiat currencies which fluctuate only in very small increments. While ultimately Bitcoin is destined to become a global monetary system at least for the Internet, of not for the World as a whole, currently Bitcoin as such a global monetary system is still in the very earliest stages. Volatility will reduce as the exchange rate increases, ultimately attaining similar stability to fiat currencies when the exchange rate reaches hundreds of thousands of Dollars, which it must do to place it beyond the range of manipulation and the high volatility we see today.

Bitcoin Market Outlook

 Bitcoin year to date chart June 2 2014

The new phase of the long term bull market is very much intact with the exchange rate following the up-trend line despite volatility. From a technical perspective the new phase of the bull market will not be confirmed until the exchange rate reaches around $750, but with the way the market is trading, $750 looks increasingly like a formality that will be attained within the next couple of weeks.

With resistance around $670 and support around $640, the bulls are looking for the market to break resistance followed by challenging the next key level of $700 in the next week or so.

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