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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: Move Down Might Have Already Begun

Bitcoin Trading Alert originally published on December 16, 2014, 11:49 AM.


In short: short speculative positions, stop-loss at $393, take-profit at $275.

n sales for 2014 might end up close to $3 million, quite significantly below the initial estimates the company's CEO Patrick Byrne and even more visibly below the later estimates. In an article on CoinDesk, we read:

International retail giant Overstock.com is reporting that it expects to complete $3m in total bitcoin sales for 2014.

The figures are notable given that the e-commerce company had issued a wide range of potential estimates for its first-year bitcoin sales over the course of the year. In March, CEO Patrick Byrne suggested Overstock was on pace to achieve $10m-$15m, or even $20m, in bitcoin sales.

Such estimates were also below the $5m Byrne said Overstock originally anticipated, though on par with those suggested by Overstock chairman of the board Jonathan Johnson in interviews.

Judd Bagley, director of communications and general manager of Overstock's Cryptocurrencies Group, confirmed, however, that the company had expected a higher figure than $3m.

Bagley told CoinDesk:

"While we're still very happy with sales to customers paying with bitcoin, the numbers didn't meet our initial expectations."

This is not particularly encouraging since it seems that the demand for Bitcoin payments at Overstock has recently slowed and it might turn out to be a lot worse than what was expected even at the introduction of Bitcoin payments at the company. So, this might be symptomatic of excessive optimism. In reality, the adoption of Bitcoin has been a lot slower than some of its proponents suggest.

On the other hand, this doesn't exactly mean that the demand for the currency has dried up. It is simply smaller than anticipated by Overstock. If appropriate investments in security and ease of use are made in the coming months, Bitcoin will still have the potential to pick up as far as the number of users is concerned. We expect more users to adopt Bitcoin over the next year but the technological improvements in the safety and user friendliness departments will be crucial to the possibly wider adoption of the cryptocurrency.

For now, we focus on the charts.

BITSTAMPUSD Bitcoin BitStamp (USD)
Larger Image

Yesterday, we saw a day of increased volume on BitStamp. This was accompanied by depreciation. The most visible change, however, was a close below $350, a first in four days. Yesterday, we wrote:

If the currency closes below $350, we might see a beginning if the next move down. The volume hasn't been strong, which suggests that such a move hasn't actually started just yet.

The increase in volume and a close below $350 were suggestions that the move down might have started but the implications were not very strong, since the volume was not really strong and the move down was not really deep. The short-term outlook became more bearish nonetheless.

Today has been another story completely (this is written before 11:00 a.m. ET). There has been more depreciation and the volume is already stronger than yesterday as well. Bitcoin has moved away from $350 and to the downside. This might mean that a move down is already underway. This is no sure bet, but at this time this is our best bet.

Larger Image

On the long-term BTC-e chart, we see that Bitcoin is still very much below the possible recent trend line and also below $350. Yesterday, we wrote:

Today, the move has been down and the currency is once again below $340. We read this as a possibility that BTC-e moves lower and possibly leads BitStamp lower as well. We haven't really seen volume that would usually be linked to a beginning of a move down, but the short-term outlook is still down. It seems possible that we will see a move lower to $300 and even to $275 in the weeks to come.

Since Bitcoin has gone down today, to below $330 and might in fact be leading BitStamp lower. The volume hasn't been explosive but it's already at the level of yesterday's close and will most likely end up being higher. This is not a very strong indication but it might point to the possibility that the move down has already begun.

Our suggested hypothetical positions are already profitable, and in our opinion they have the potential to become even more profitable in the days to come. We expect Bitcoin to go down to $300 at this time. If it breaks this level, we might even see a drop to $275 and a possible new yearly low.

Summing up, we still think that short speculative positions might be the way to go.

Trading position (short-term, our opinion): short, stop-loss at $393, take-profit at $275.



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