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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's Recent Low Volatility Might Be Deceptive

Bitcoin Trading Alert originally published on April 21, 2015, 12:05 PM.


 

In short: speculative short positions, stop-loss at $239, take-profit at $153.

We frequently comment on new initiatives in the startup scene, and today we also read and interesting press release on the Market Watch website:

BitGo, the leader in bitcoin security, today announced a partnership with online cryptocurrency data provider TradeBlock. The combination of TradeBlock's execution and analysis tools and BitGo's trustless multi-signature security products create a complete security and transaction solution for private and institutional Bitcoin traders.

"Today's trading environment demands flexible, responsive and highly connected infrastructure while also remaining completely secure," said TradeBlock CEO Greg Schvey. "We believe the combination of TradeBlock's execution and analysis tools with BitGo's class leading multi-signature security creates the most powerful of feature set available to traders today."

As part of the newly formed partnership, BitGo and TradeBlock will work to create seamless interoperability between the companies' product suites, resulting in one easy to integrate system for private and institutional customers. Now, institutional and individual traders can manage their over-the-counter trading activity and portfolio in a single system.

One has to bear in mind that this is promotional material, so we take the claims made in it with a pinch of salt, but the idea of combining analytics tools with multi-signature security does seem appealing. We have frequently mentioned that in order to get more users, Bitcoin will have to evolve to become more secure and, at the same time, easier to use. This usually applies to the idea of Bitcoin being used as a means of payment by individuals and companies. Here, the situation is slightly different since the BitGo and TradeBlock's product is likely to be used by private and institutional traders rather than for payments. This potentially makes security even more important since the security of trades should be paramount to any financial institution.

How the final product will actually look like remains to be seen, but we count this as one of many similar positive developments suggesting that the ledger mechanism is here to stay. And since Bitcoin is the most popular cryptocurrency, it seems that most of the solutions proposed will be for the Bitcoin system.

For now, let's focus on the charts.

BITSTAMPUSD Bitcoin BitStamp (USD)
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On BitStamp, yesterday was a perfect continuation of the no-action period we saw over the weekend. Bitcoin barely moved and the volume was almost identical to what we had seen on the day before. Yesterday, we wrote:

(...) we've seen more of the same (...), that is not much action in terms of price with relatively weak volume levels. Bitcoin is still below $250, the rebound we saw before the weekend might already be over, and it seems that the currency still has some room to decline. The one question now is whether the decline would come in a matter of days or weeks. The action suggests that what we're seeing now might be more of a pause but the possibility of a decline remains very much in sight.

Today, the action has been even less visible (this is written before 10:00 a.m. ET). It seems to us that Bitcoin is now in consolidation mode, drifting sideways after a short-lived rebound. Since there has been no continuation of the rebound and the current action is rather weak, it doesn't seem that we're seeing a move higher just now. In our opinion, the lack of action after the small rebound suggests that we might be in for more depreciation.

BTCEUSD Bitcoin BTC-e (USD)
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On the long-term BTC-e chart, we're seeing that the movement has been relatively flat recently, following a tiny rebound from a move down. Yesterday, we wrote:

It seems now that we might be in for a consolidation. The thing here is that even though we might have to wait for the move to materialize, the possible slide below $200 (dashed red line in the chart) might be worth the wait in terms of how deep the currency might go down. The recent downtrend has been in place since the first week of April but the move has not been really strong. We also might have just seen a miniature correction (Wed.-Thu.) and Bitcoin might still have some room to decline. All of this suggests that even though we might still have to wait out some fluctuations, the following move might be rewarding.

Today has been even more supportive of the above comments. The consolidation has continued, there has been no significant move up and Bitcoin is fluctuating close to $225. What is more, the currency still seems to have room for decline. Right now, we think that some up and down movement might still be ahead of Bitcoin traders but the current environment suggests that more declines can follow.

Summing up, in our opinion speculative short positions might be the way to go now.

Trading position (short-term, our opinion): short, stop-loss at $239, take-profit at $153.

Regards,

 

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