This week on Planet Bitcoin - 20 May 2016

Thursday 19 May 2016

TL;DR bitcoin took a tumble, Ethereum's going mad.

Yet again, it was a very quiet week for bitcoin - at least until the last few hours. The $440-470 channel within which bitcoin has been since the end of April looked like it was easily going to hold, and the last week it has moved around an even narrower range between $450 and $460. In the end, there was a surprise though.

Chart

We have seen periods of lengthy consolidation in the past, and they have generally been followed by an upward move. That is certainly the expectation among most of the community - which may or may not be cause for optimism. There are plenty of traders who are leveraged long, and that can easily go bad. Firstly, because when the proportion of traders that are long reaches a maximum, there are logically no more to come into the market. Secondly, they are an attractive target for manipulators. This means that although the fundamentals are now very attractive, a brief crash would not be surprising. One wildcard to bear in mind is the recent movement of a large chunk of old coins. May 18 saw a total of 50 million bitcoin days destroyed, purpose unknown at this stage. If they are en route to an exchange things will get interesting, though of course this is not the only explanation. 

Thursday evening finally saw bitcoin break out of its recent pattern, with a fall to $435. Though it quickly recovered back up into the $440-470 channel, the pattern has been broken. A good deal of longs will have been wiped out by the fall, paving the way for a new consensus in the market. Notwithstanding, the picture over the last several months has been one of steady upwards movement, albeit punctuated with some noisy blips.

Ethereum and The DAO

Ethereum, meanwhile, has not been so steady. In the past week it has rapidly appreciated, spiking up above 0.03 and almost to its all-time high, gaining a market cap of over $1 billion in the process. The DAO may be a major factor in that. The decentralised entity has collected around $163 million in ETH at the time of writing, and it’s likely that people are buying in heavily to invest in it, creating a bubble as traders jump in too. When or quite possibly before crowdfunding finishes at the end of next week, that bubble will become unsustainable and traders will recognise the sell pressure inherent in the business model.

Out and about

In the wider economy, it’s a mixed picture. There is still disagreement among key players over Greece’s unsustainable debts. The IMF appears to want a zero-interest period until 2040, then repayment over the following 40 years, capped at 1.5%. Unsurprisingly, this debt relief in everything but name has not gone down well in Germany.

The odds of Brexit appear to be receding, with at least one poll showing a double-digit lead for Remain, which prompted a strengthening of the pound on Wednesday. However, internet and phone polls are showing significant differences, leaving pollsters scratching their heads, and the lack of precedent for the referendum means they are flying blind.

Lastly, the Fed has indicated that it plans to raise interest rates next month as it believes the economy is strong enough to absorb it.


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