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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: Is Bitcoin to Slump Now?

Bitcoin Trading Alert originally published on May 15, 2015, 11:30 AM.


 

In short: no speculative positions.

A new fund is being launched in the Bitcoin space, we read on CoinDesk:

A new fund has been launched on equity CrowdFunding platform BnkToTheFuture.com that allows investors to benefit from the growth of the Crypto Currency sector.

The new fund, called Bitcoin Capital will be managed by financial journalist, virtual currency inventor, entrepreneur and investor Max Keiser, and Simon Dixon, an ex-investment banker, investor, entrepreneur and co-founder of Bnk To The Future.

Aimed at investors that want to invest small and large sums into the crypto currency sector, Bitcoin Capital is not only a venture capital fund that aims to invest in the highest growth startups in the Blockchain, Crypto and Bitcoin sector, but the fund also offers investors the ability to accumulate daily dividends paid out in Bitcoin.

Traditionally investing in venture capital is a patient game, taking years for companies to mature and be sold or float on a stock market to offer investors a high risk, high return investment. To combat this, Bitcoin Capital is able to pay investors daily dividends by investing one third of all funds raised into a process called Bitcoin mining. Bitcoin mining involves investing in sophisticated hardware that provides security to the Bitcoin network in return for newly created Bitcoins. Because new Bitcoins are created every ten minutes, Bitcoin Capital is using these newly created Bitcoins to pay investors daily dividends while investors wait for the funds in venture capital investments to mature.

This shows that there is still eagerness to start Bitcoin funds even though the currency has been in a downtrend for over a year. As the fund will invest in startups, this might be less of a concern since the returns to venture capital investment in the Bitcoin space don't have to be directly related to the price of Bitcoin.

It will be also interesting to see whether the proceeds from Bitcoin mining will be in fact attractive to investors as a kind of dividend. This is the first Bitcoin-related fund we know of to combine such unique characteristics - investing in Bitcoin startups and reaping short-term gains (hopefully) from Bitcoin mining. It might also be a sign that other kinds of Bitcoin funds, not only those investing directly in the cryptocurrency are going to emerge in the near future.

For now, let's focus on the charts.

BITSTAMPUSD Bitcoin BitStamp (USD)
Larger Image

On BitStamp, we didn't see much action yesterday. Bitcoin remained below $250 (green line in the chart), the action was not violent and the volume wasn't really high. Does this mean that Bitcoin has become boring? Not necessarily. Firstly, our comments from yesterday are still up to date:

Even though we saw depreciation yesterday following the publication of our alert, the situation didn't really change much. This was mainly because the price action was not strong enough, in our opinion. Today, we haven't seen very much action (...) and the volume has been relatively weak. Today isn't really supportive of more declines as we haven't really seen a swing to the downside.

Secondly, we haven't really seen much action today (this is written after 11:00 a.m. ET). So, we might expect a downswing but we haven't seen one yet. This makes the situation tense rather than boring.

BTCEUSD Bitcoin BTC-e (USD)
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On the long-term BTC-e chart, we see that Bitcoin might be beginning to move down. "Might" is the key word here as we haven't really seen a confirmation of the move being started. Two days ago, we wrote:

(...) We might see a move above $250 and this prevents us from opening hypothetical short positions. The fact that the upside seems limited while the downside looks relatively significant also suggests that long positions might not be the way to go now. In the current environment we would prefer to wait for a move up and a slump or a more decisive sign of depreciation before considering short hypothetical positions.

This is still the case. The short-term outlook is now more bearish than it was yesterday and we are relatively close to a weak confirmation of a move down, but not just there yet. As such, we still are of the opinion that it might be best to wait for an additional confirmation.

Summing up, we don't support any speculative positions at the moment.

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

Regards,

 

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