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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: Bumpy Ride for Bitcoin Traders

Bitcoin Trading Alert originally published on October 10, 2014, 10:34 AM

To the point: long speculative positions, target at $500, stop-loss at $337.

The U.S. Commodity Futures Trading Commission (CFTC) is playing-catch up with Bitcoin. The CFTC held a meeting in Washington yesterday, to learn more about the cryptocurrency, we read on CoinDesk:

Panelists for the CFTC event included Coin Center executive director Jerry Brito; New York Law School professor Houman Shadab; BitPay chief compliance officer Tim Byun; and TeraExchange president and co-founder Leonard Nuara.

While only covering basic elements about the subject and sidestepping larger questions about bitcoin's classification as a currency or commodity, the roughly two-hour session appears to have done much to convince the CFTC of the potential of digital currency.

CFTC Commissioner Mark Wetjen said:

"It just seems like based on what I have learned, some of those applications could be so compelling that it would be a real mistake for us as a commission to not make sure we are staying on top of these developments."

The regulators are getting updated on what Bitcoin is and it seems that the CFTC is appreciating the opportunities the currency might give. This is a good sign as far as further development of Bitcoin derivatives is concerned. The CFTC's remit is to regulate the derivatives market in the U.S. Since the Commission is now familiarizing itself with the currency and getting more insight into how Bitcoin works, it seems as though the way for more Bitcoin derivatives might be open. Of course, the development of such exchange-traded derivatives would still take time but the CFTC doesn't seem to be hostile to the currency in any way.

For now, let's turn to the charts portion of today's alert.

BITSTAMPUSD Bitcoin BitStamp (USD)
Larger Image

On BitStamp, we saw an explosion in volume yesterday. More than 45,000 were traded during the day. Bitcoin tested $400 (green line on the chart), reversing later on. The change in short-term trend is now very well visible, but the recent turn (yesterday late in the day) was down.

Today (this is written before 9:00 a.m. ET), we've seen a move up being followed by a move down. The volume is suppressed compared with yesterday but is not really weak. Right now, yesterday's retracement and today's action point to a slowdown in a move up. At the moment, the currency is above $350, the trend seems to be up and the volume is still significant. But is this enough to suggest that further appreciation might be in the cards?

BTCEUSD Bitcoin BTC-e (USD)
Larger Image

On the long-term BTC-e chart, we see a rebound from the level of $300 in the direction of $400. The move was somewhat stopped yesterday but Bitcoin has stayed above $350 today.

If you recall our comments from yesterday:

(...) the action has been up and our limit order was triggered. The volume has also been up so far. These clues suggest that the move up is starting to gain the necessary momentum. While what we've seen so far isn't enough to call the rebound a very strong one, it seems strong enough to go for speculative long positions.

Given yesterday's and today's action, the momentum seems to be there. The move is to the upside. One reservation is that the action yesterday ended in depreciation and that we've definitely seen a slowdown today. The move down hasn't been strong and currently it seems that it might be a slowdown within a correction. Consequently, our bet is still on a move up.

Summing up, long speculative positions might be the way to go.

Trading position (short-term, our opinion): long speculative position, target at $500, stop-loss at $337.

 

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