Bitcoin Freefall Continues. Is The End Near?
Ben Myers | Aug 19, 2014 06:42AM ET
There has been intense speculation over what caused the Bitcoin price to drop so sharply over the weekend, with the price breaking through the support level around the $490 mark. One possibility is that the increase in the price of gold, due to its seasonal strength in August, could mean concurrent weakness for Bitcoin.
Some have suggested the small crash in the Bitcoin price was initiated by margin traders, who borrowed money to take long positions on Bitcoin following positive sentiment about New York’s BitLicense. As the price fell on other news, margin calls had to be closed out. However, what remains unknown is whether someone is manipulating the price downward or if a big position was closed out.
The transparency of Bitcoin exchanges is an issue going forward and work is being done to improve this. Over the long-term, we could see the rise of a 3rd generation of exchanges that are regulated, or a consortium of ‘self-regulated’ exchanges.
Since June, the European Court of Justice has been looking at whether virtual currency exchanges are liable for value-added tax fees and their ruling will have important implications for tax in Europe. Many European states have not decided whether to charge VAT to Bitcoin exchanges, whereas the UK has ruled out VAT charges for exchanges and miners. The ruling delivered by the ECJ could prompt other countries to change their regulations, or even introduce legislation that broadly addresses VAT on Bitcoin, which would force exchanges to re-think their business models.
The potential for Bitcoin to be taxed twice by merchants, once when receiving them as payment and again when sold, is a danger in Europe and Singapore. This would hamper exchanges and increase the transaction cost of Bitcoin, which is bearish for the crypto-currency in the long term.
Another notable development over the weekend is that over $1.5 million worth of NXT coin, an alternative crypto-currency to Bitcoin, was stolen from the Bter exchange, raising fears over the safety and security of crypto-currencies. The 8.3 million NXT coins were returned to the Bter exchange yesterday, possibly due to negotiations between the exchange and the hacker who stole them. The exchange was considering switching over to a new blockchain. This attack is not due to NXT security but rather Bter’s insecure servers, highlighting the need for exchanges to increase security.
The price of 1 BTC is currently $486.60, down 1.29% from 24 hours ago. The next possible support level lies at the $440-$450 zone, whereas the important resistance level lies at $560. Large-scale selling volumes have pushed Bitcoin down, with the previous buying volumes not covering the recent selling volumes, indicating a bearish outlook.
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The chart below is the daily time frame chart with several indicators. The parabolic stop-and-reversal indicates the daily trend is downward and any sell orders should not be completed yet. Buyers should wait until this indicator reverses and enter buy orders once the dots start appearing below the price actions.
The Bollinger® bands show a Bollinger squeeze for the 12th August. The breakout will continue, pushing prices down. The stochastic is on the edge of the oversold region, meaning that a pullback is likely soon. The relative strength index is below 30, indicating oversold conditions as well.
The Ichimoku cloud technical indicator signals a bearish outlook, since the price action is below the ‘cloud’. The current downward trend is re-inforced as the green line has moved below the red line. The cloud acts as future resistance levels, being at the $545 level for early September.
Taking a look at the 4-hour chart, the price action is below the cloud, confirming a bearish outlook. The resistance levels for the next 3-4 days are at the $512.15 and $539.28 levels. If the price action moves above the $510-515 level and if the blue line crosses the dark red line in the upward direction, this will be considered slightly bullish for Bitcoin
Looking at the hourly chart, we see that the Parabolic SAR indicates the start of a downward trend today. The relative strength index is approaching the 50 level and if it moves past 50, the downward trend will be considered a strong one and sellers should enter the market to ride this trend. The Bollinger bands indicate support at $480 and resistance at $505.
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