Bitcoin Trading Alert originally published on May 9, 2014, 10:54 AM
To the point: we still support short speculative positions in the Bitcoin market, stop-loss at $470.
Bitcoin is sometimes viewed as a highly disruptive innovation with the potential to change the payment system. While it surely provides a lot of opportunities, it doesn't necessarily mean that it will cut the banks out of the system. Bloomberg posted a piece yesterday in which it argues that the very banks that would feel any kind of threat from Bitcoin are currently studying the innovative nature of Bitcoin to possibly come up with their own kinds of seamless payment systems:
While Jamie Dimon and Warren Buffett express doubts about bitcoin, executives running the financial industry's back offices are looking at mimicking the virtual currency's methods of moving money quickly and cheaply.
FIS, a provider of systems used by banks to handle payments, is examining whether a public ledger like bitcoin's could help securely move funds on existing networks, Fred Brothers, the firm's chief innovation officer, said in an interview. Fiserv Inc. (FISV), a provider of technology for payments and accounts, is examining bitcoin's use of encryption to ensure transfers are secure, said Marc West, a senior vice president.
"It's safe to say that every bank is looking at what's going on with bitcoin and those types of technologies," said Steve Kenneally, a vice president at the American Bankers Association. "Most of the larger banks are investigating it. The larger the banks, the further along they are."
This is not very surprising as competition dictates that market players will adapt to the changing conditions. The incumbent middlemen are trying to figure out what kind of threat to their operations Bitcoin might be and to turn this threat into an opportunity.
What is not clear is the extent to which these efforts will succeed. Currently, Bitcoin is still the dominating alternative currency in spite of a slew of alt-coins mushrooming up in the last couple of years. So, any efforts by banks, payment companies or other market players are not immediately guaranteed to take off. For now, Bitcoin is the currency of choice as far as cryptocurrencies are concerned.
Let's take a look at today's charts.
On BitStamp, Bitcoin edged 0.5% down yesterday which could be an indication that the short-term strength was over. This was further supported by the fact that the volume was almost halved when compared with that of the previous day. There was no strong move down, however.
Today, we've seen a move up (this is written before 10:00 a.m. EDT). Not a very strong one, 2.1% so far. Does this change anything as far as our suggested short position is concerned? Not really. The move hasn't even brought Bitcoin back above $450 and, more importantly, it has taken place on weak volume, weaker than yesterday. So, another day of appreciation on weak volume might just mean that we're getting closer to the short-term top (if this can even be called a top), and the bearish short-term outlook remains unchanged.
On BTC-e, Bitcoin went 0.2% up yesterday on falling volume. This kind of move doesn't count as any sort of meaningful indication on its own but considered together with the recent appreciation, it seemed that it was actually more bearish than not.
Today, there has been appreciation, 1.4% but the move hasn't been strong, the volume has been not even half of what was seen yesterday. The 1.4% seen today doesn't look as anything more than the final stage of a move up and might be followed by declines. If you recall what we wrote yesterday:
Today, we've seen some more appreciation (this is written at 10:10 a.m. EDT) but it hasn't been particularly strong. What is more, the volume is now significantly lower than it was yesterday. Consequently, we don't view today's move as bullish. Not only that. We actually view today's move (so far) as bearish for the short term.
This seems not to have been invalidated by the events of today (so far). Consequently, we still think that the short speculative positions we suggested yesterday might become profitable in the near future.
Summing up, in our opinion short speculative positions might be the way to go now.
Trading position (short-term, our opinion): short, stop-loss at $470. We expect the move up to be reversed and more declines to follow in the near future.