Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Tension Building Up in Bitcoin Market


The move down continued on Monday -- but not enough to recommend holding short-term positions.

Mt. Gox has enabled users to log into their accounts and check their wallet balance. Before users get excited, this doesn't mean that they will be able to access their money. For all we know, these balances are nothing more than numbers on a computer screen or in a database. Mt. Gox reminds us of that using different wording:
Important announcement to all users confirming their account:

This balance confirmation service is provided on this site only for the convenience of all users.

Please be aware that confirming the balance on this site does not constitute a filing of rehabilitation claims under the civil rehabilitation procedure, and note that the balance amounts shown on this site should also not be considered an acknowledgment by MtGox Co., Ltd. of the amount of any rehabilitation claims of users.

Rehabilitation claims under a civil rehabilitation procedure become confirmed from a filing, which is followed by an investigation procedure. The method for filing claims will be published on this site as soon as we will be in situation to announce it.
Again, Mt. Gox doesn't even acknowledge that these are the amounts owed by them to customers. It's unclear whether the actual numbers are up to date or just figures from the past. The announcement doesn't really change anything as far as the situation of Mt. Gox's customers is concerned, and I won't pay too much attention to it unless it turns out that the amounts shown in the account balances are backed up with Bitcoins.

Let's move on to the charts.

Click to enlarge

The move down has picked up in the last two days on Bitstamp. On Monday, Bitcoin lost 2.2%, a second day of increasing volume. The outlook wasn't changed since the currency didn't break below $600 (dashed red line on the chart). Overall, there was more action Monday than during the preceding days, but not enough to support short positions.

Today the move down has deepened. At the time of this writing (11:40 a.m. EDT), Bitcoin is down 1.7%, and the volume has already topped what we saw yesterday. We have a move down on increasing volume, which looks like a classic shorting opportunity. Is this enough to go short at this time? We don't think so. The price briefly went under $600 but has retraced since and is currently around $610. This means that the move down has lost some of its steam, at least for now. At this moment, we don't support going short.

It's conceivable that this is only a temporary break and that Bitcoin will slip under $600 in the hours to come. If such a move indeed takes place and the volume picks up, there might be a shorting opportunity. We're not quite there just yet.

Click to enlarge

The picture on BTC-e is consistent with what was seen for Bitstamp. We have a move down on increasing volume. If anything, the move today has so far been stronger than yesterday, even taking into account the small rebound from $600 (dashed red line on the chart) seen earlier today.

On the other hand, Bitcoin hasn't gone as low on BTC-e as it has on Bitstamp. For the time being, today's low on the former exchange is $598.00, compared with $591.13 on the latter. The most important part seems to be the fact that the currency has gone back above $600.

Right now, the situation is tense and we might see further moves down quite soon. However, the possibility that such action will be stopped above $600 is significant enough for me not to support opening short positions just yet.

Summing up, in my opinion no positions should be kept in the market. This may change in the following hours if Bitcoin breaks below $600 on strong volume.

Trading position (short term, my opinion): no positions. A break below $600 on strong volume would be a bearish short-term sign now.

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 he develops innovative investment tools, and is the author of the Bitcoin Trading Alert service.
< Previous
  • 1
Next >
No positions in stocks mentioned.
Featured Videos