This week on Planet Bitcoin - 19 June 2015

Friday 19 June 2015

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

Finally, the picture has changed. Almost without warning bitcoin hit a two-month high after falling to a recent low a little above $220 and bumping along under $230 for most of the previous week. On Monday the switch flipped, and the price started to rise – rapidly accelerating and hitting $255 two days later. There was then the predictable pullback as traders took profits, but even that didn’t send it below $240, and another upward correction took it back to $250 shortly after.

Weekly chart

The question is what happens next. Is this just another random bout of volatility, or does it signal that start of something broader – a decisive end to bitcoin’s long downtrend and final confirmation of trend reversal? $250 is a pleasant change after months of slow action, but it’s not enough to be sure just yet.

Greece and China

One question is where the money is coming from and the overall sense that gives of where things might be heading. With the threat of a Grexit looming, there is evidence that some Greeks are buying bitcoin to avoid the capital controls that will inevitably be imposed if the country defaults on its debts at the end of the month. This may not be enough to move the market very far (yet), but it’s nevertheless been a source of demand this week. And then there is China.

China’s stock market has experienced a long period of intense growth, and the Chinese government have been threatening to clamp down on leveraged trading to prevent further overheating. It’s a fair assumption that if traders think they’ll be denied the chance to use leverage at home, they will move money to somewhere it is allowed – especially if their trading is essentially a form of gambling to them. A number of high profile public offerings have pulled further liquidity from the stock markets. The fact that these two things coincided with the rise to $255 suggests that Chinese money is flowing back into bitcoin.

Then there’s the picture in the alt markets. Bitcoin has lifted perhaps 10% in the last few days; many alts have seen multiple double-digit rises. Even those with a high market cap have spiked: LTC rose 30% in one day. This is clearly down to Chinese money, since the Chinese exchanges lead on price.

It’s hazy quite what is happening here, or what will happen next. What is certain is that bots are being used to trade large quantities of coins, interleaving buys and sells to make the movement seem more natural as they move the price up. Whilst bots are used by regular traders and within exchanges (an open secret), in this case the activity seems coordinated and suspicious. There is the possibility that they are being used to ‘paint the tape’: to give the appearance that certain patterns of technical indicators are being met, presumably to induce more simple bots and technical traders to follow suit. Whether that is part of an effort to push the price much higher, or simply to contrive a selling opportunity that will be followed by a cataclysmic crash, cannot be known at this point.

Around the BitWorld

The debate about blocksize seems to be making some progress. A cartel of Chinese miners has suggested 8 MB blocks – instead of maintaining the current 1 MB size and letting the market decide which transactions are included (by paying more), as some miners prefer, or increasing blocksize to 20 MB to maintain cheap and reliable transactions, as Gavin Andresen has proposed. This is a reasonable compromise and better suits Chinese internet infrastructure. It’s also likely to be taken seriously. As the FT writes, ‘it’s all so similar to what happens with oil and Opec, and speaks volumes for the actual “democracy” in the system. (Namely, there isn’t any. China — the Saudi Arabia of bitcoin — dominates.)’

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