This week on Planet Bitcoin - 17 April 2015

Friday 17 April 2015

Weekly market report and news from Dynacoins, first community-supervised mutual bitcoin fund.

It’s been another turbulent week for bitcoin, hitting lows we haven’t seen for almost three months. After three days of stability practically glued to the $235 line, the market took a sharp dip, falling $10 in an hour and continuing down another $10 over the next 24 hours. From there we saw a brief recovery to $220 and then a more gentle climb to around $225, around which price is now oscillating. The last time the market spent any time at this level was in the rebound immediately after the crash to $155 in mid-January.

Weekly chart

What happens next will be very interesting. Sentiment has turned rather more negative, with many traders apparently expecting further falls – potentially back below $200, as previously optimistic holders sell down closer to the level that saw heavy buying (and therefore reassurance) the last time. This is often a feature of market movements, as traders establish a high and a low within which there is greater confidence. The high was around $300; the low has yet to be discovered.

It’s worth noting that, like the amount of borrowed money, raw sentiment is not necessarily the best indicator of price developments. According to Bitfinex, far more borrowed money is still expecting a rise than a fall – and yet this has been the case for some time now, and the falls have happened anyway. If sentiment is poor, this presumably means that many of those traders with a negative outlook have already sold in anticipation of a fall. This is one of the reasons that markets can move so suddenly, as those who have played their hand realise they have called it wrong. Capitulation is typically accompanied by despair as a large number of traders give up their hope of the market turning around and sell – a kind of tragedy of the commons that enables new buyers to pick up bargains. Volumes have been relatively high but not enormous; time alone will tell if enough traders are pessimistic enough to have reached that place, and if the $220s were indeed the turning point.

Elsewhere in Bitcoinland

BitPay has released its figures for 2014, and they tell an interesting story. The number of transactions it handled more than doubled from 2013, whilst the amount of money spent in each transaction roughly halved. More than 100,000 merchants now accept bitcoin worldwide, of which some 53% use BitPay. The vast majority of bitcoin purchases were made in USD – $87.7 million, vs $37.3 million equivalent in EUR and just $3 million each in CAD and GBP.

BitPay’s interpretation of these figures is that, as you might expect, bitcoin is being used more and more as a currency rather than a speculative investment. That shouldn’t come as much as a surprise, since the long bear market effectively acts as a form of inflation, prompting holders to spend (as well as sell) their coins for real-world goods and services, rather than to keep them in anticipation of price rises.

Elsewhere, police in Maine have paid a $300 bitcoin fee to recover their files after a malware app encrypted them and held them to ransom – a growing problem for the police force, it seems, and the latest of several such incidents. Lastly, Second Market, the outfit behind the Bitcoin Investment Trust, has relaunched their offering as Genesis Trading, bringing institutional and larger private investors a way to acquire chunks of bitcoin within a regulated framework and without the problems of buying in volume from current exchanges.

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