To the point: My firm doesn't support having any short-term positions in the Bitcoin market now.
On Thursday my company wrote that Bitcoin's future holds promise and that the system has the potential to revolutionize payments. In an article
from its print edition, The Economist
also comes to the conclusion that the benefits of Bitcoin may outweigh the recent disastrous shutdown of Mt. Gox over the long term. What's more, the applications of Bitcoin or its underlying general ledger (blockchain) system might not be restricted to money transfers, according to The Economist
Such "permissionless innovation," in the jargon, should in time result in a cornucopia of applications. Bitcoin's technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be "programmed" to come with conditions: For instance, it might be released only if a third person agrees.
Some want ownership of devices -- a car, say -- to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: The token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such "smart property" would turn the blockchain into a global registry of ownership in physical assets.
We don't anticipate seeing such solutions in the immediate future, but these possible applications of the blockchain system show that there might be even more to Bitcoin than we expect.
Let's turn to the charts.
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Yesterday, Bitcoin appreciated 1.0% on BitStamp on low volume. In spite of this move up, there was no change in outlook as the currency remained between $600 (dashed red line on the chart) and $700 (solid green line).
As of the time of this writing (around 12:30 p.m. EDT), there have been no important changes so far. Bitcoin is at $637, 0.6% down from yesterday's close. The final volume today might be higher than yesterday, but at this point it seems like yesterday's move up is being cancelled out. No direct bullish or bearish short-term
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The same can be said about BTC-e. Bitcoin jittered 0.2% up yesterday, but today it has lost 0.4% from its last close. If there was a divergence in prices yesterday, today we haven't seen one. Instead, both exchanges seem to confirm the stagnation.
If anything, the volume on BTC-e today might end up being even lower than yesterday - in other words, extremely weak. Even if it comes in as comparable with yesterday's levels, it will still be weak. This means that the move today hasn't gained any weight to change to the short-term trend (which is flat).
Currently, Bitcoin is closer to $600 than $700 on both exchanges. The action we've seen recently doesn't add significant bullish or bearish cues to the picture. One potentially comforting fact is that the decline fueled by speculation about Mt. Gox seems to be over. My firm still thinks that Bitcoin has the potential to go back to $800, but we're not betting on the move happening in the near future.
Summing up, in our opinion no short-term positions should be kept in the Bitcoin market at this time.
Trading position (short term, our opinion): no positions. We're waiting for volume to pick up.
For the full version of this essay and more, visit Sunshine Profits' website.
Mike is a quantitative analyst focused on economic reality, not theoretical models. His investment thinking is grounded in empirical evidence and common sense. A holder of two master's degrees in quantitative methods and finance, he researches economic uncertainty, portfolio management, and investor behavior. At SunshineProfits.com he develops innovative investment tools, and is the author of the Bitcoin Trading Alert service.
No positions in stocks mentioned.