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Mike McAra

Mike McAra

Mike is a quantitative analyst focused on the economic reality, not theoretical models. His investment thinking is grounded on empirical evidence and common sense.

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Bitcoin Trading Alert: Bitcoin Might Move Shortly

Bitcoin Trading Alert originally published on September 2, 2014, 9:59 AM


Briefly: we don't support any short-term positions in the Bitcoin market.

An increasing number of Canadian employees are choosing to get paid in Bitcoin, an article on CTV News reported:

A small but growing -- and surprising -- number of workers are rejecting Canadian dollar salaries for Bitcoin, according to a Waterloo, Ont., payroll firm.

Wagepoint CEO Shrad Rao said his firm came up with the cryptocurrency payment option in November last year as a side project and did not expect any take-up.

But as the online currency gained popularity this year, he said, employees from 10 firms have signed up for the Bitcoin option, and many more are asking about it.

"When we started off, we didn't even think we'll get one," he said over the phone from New York, where Wagepoint has another office.

"What's interesting is that we've actually had customers come to us because of the (Bitcoin) integration, which we were not expecting at all."

Rao said the firms are overwhelmingly technology companies, whose workers have higher interest in new innovations and tend to dabble more.

In addition to Canadian interest, he said gets about five inquiries for Bitcoin payment per month from the United States, where Wagepoint also operates, although it has not yet launched such an option in that country.

It is still a small movement but, nonetheless, an interesting one. We've read much about Bitcoin payments as accepted by retailers, about money transfers and investment. To accept one's wage is not different than to accept payment for goods or services. After all, salaries are payments for the rendering of services.

It is, however, different in that people who are paid in Bitcoin are far more open to fluctuations in the value of Bitcoin since they most probably don't hedge their Bitcoin holdings. A retailer accepting Bitcoin usually converts the payment to the local currency at the very moment of reception. A worker paid in Bitcoin most probably holds their bitcoins in a wallet which entails exchange rate risk since Bitcoin exchange rates vary and the coins have to be converted to the local currency at some point. In this way, Bitcoin holders are not sure what goods and services they will be able to buy using their coins.

As it turns out, this doesn't scare off Bitcoin enthusiast, as discussed in the article. How far this will go is not clear but it seems that the trend is up. This is yet another hint at the possibility of Bitcoin developing into a widely-adopted payment system.

For now, we turn our attention to the charts.

BITSTAMPUSD Bitcoin BitStamp (USD)
Larger Image

On BitStamp, the move down yesterday was not strong. Neither the close nor the volume itself suggested an overly bearish outlook. On the other hand, a reversal to around $490 was denied which indicated that strength was not the major characteristic of the market at that time.

Let's bring up our yesterday's comments:

The weekend brought changes on BitStamp. Bitcoin depreciated on Saturday but really plummeted on Sunday with a visible increase in volume. The move concluded below $500, close to $480, around the closes seen at the recent bottom. This seems like a lot of factors to consider, possibly adding to a bearish outlook. Is the outlook actually bearish now? We follow with our comments clarifying the current situation.


Compared with that, the move yesterday was definitely a visible change in the recent trend. A change to the downside, that is. The depth of the slide is relatively significant but what really reinforces it is the surge in trading we saw. This makes the move below $500 all the more significant and possibly having implications for investors.

These remarks are very much up to date in light of what we've seen today (this is written around 9:00 a.m. ET). We've seen some appreciation, which brings about the question whether Bitcoin is actually rebounding. This question comes only naturally to Bitcoin investors and so it also presents itself to us and we're very carefully considering the implications of today's price action before giving you our clear opinion on the matter.

The move has been up today but the volume hasn't actually followed. A possible decrease in volume (the day is not over yet) points to the possibility that the move we're seeing now is merely a short rebound and that the main direction is down.

This seems to be the case as now Bitcoin has stayed below $500 for some time and the currency actually looks like it's getting anchored below this level, at least for the time being. If Bitcoin stays below this level, we might see a further slump below $450, which coincides with the level of the recent local bottom at $442. Any more depreciation today or tomorrow could be starting sign for such a move.

Larger Image

On the long-term BTC-e chart the situation remains basically unchanged from yesterday. This means our recent commentary is still valid:

There was a move down on BTC-e, visible even from the long-term perspective. Bitcoin went below $500 in a first decisive move in days. The magnitude of the slide itself is, however, only secondary as far as the importance of the move was concerned. Why is that?

A look at the spike in volume is pretty much self-explanatory here. While 1,164 bitcoins were traded on Saturday, Sunday saw 41,590 (!!!) bitcoins change hands. A 3,473% increase, if you will. This activity has been blamed on a trading bot gone wild. This might be the case, but the most important short-term clue for investors here is that the price hasn't actually completely recovered following the spike in volume, whatever the reason. Because of that, it seems that we've actually witnessed an important change in the short-term outlook.

The move below $500 on BitStamp and BTC-e, the volume and the fact that we haven't seen a recovery suggests that the short-term outlook has just deteriorated. Consequently, we don't support any short-term speculative positions in the Bitcoin market at this time.

The appreciation we've seen today doesn't alleviate the concerns that Bitcoin might be on the brink of a new decline following a move below $500 which is now more than visible. The volume levels we've seen today don't inspire too much confidence and project and image of a weak corrective move to the upside.

At present, it seems that unless we see a move above $500, the expected direction for the next move is down. We're close to a situation when opening short speculative positions might be the way to go but we'd prefer to see where Bitcoin closes today before opting for that.

Summing up, in our opinion no speculative positions should be kept in the Bitcoin market now.

Trading position (short-term, our opinion): no positions.



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