This week on Planet Bitcoin - 30 October 2015

Friday 30 October 2015

TL;DR - still on the up, and it’s a more sustainable rise than last time.

Well, it’s been a very encouraging week. In fact, the picture across the past two months has been positive. Throughout the majority of this year, since the capitulation and crash to $155 that took place in January, bitcoin has been trading within a band between $200 and $300, and between around $220 and $280 for the vast majority of that time. There have been long periods of stagnation, the price holding steady with movements of only a few dollars one way or the other, interspersed with sudden jumps up and down. Volumes have generally been low.

The most obvious way to interpret that is as a loss of confidence and great uncertainty about the future. The sharp movements up and down can mostly be explained by large holders trying to jolt traders out of this pattern - something that hasn’t worked, as the market just hasn’t been ready for it yet.

 Weekly chart

That has apparently changed over the past couple of weeks. In the last couple of days bitcoin has moved above $300, something that has occurred only twice in the past year. The first time coincided with Coinbase’s announcement back in March that it was to become a regulated exchange. The buying frenzy was encouraged by Coinbase’s own ‘to the moon’ marketing strategy, but quickly evaporated after the announcement was made (and questions were raised about just how comprehensively regulated it would be). There followed a swift decline back down to the low $200s.

The second move above $300 happened in the summer, when Greece looked set to default on its unsustainable debts. Bitcoin, went the narrative, was the vehicle of choice for circumventing capital controls. Although Greece’s debts remain unsustainable, that rally ended even faster when an agreement was hammered out between EU officials.

This time, it’s different. There is no single piece of news that has provoked rapid buying. Instead, the rise is more measured (if still rapid), and seems to be driven more by broad change in sentiment rather than one factor. There have been many encouraging pieces of news in recent weeks and months, and the confidence and demand these herald in bitcoin may finally be filtering through to the market.

As ever, it’s too early to say what the outcome will be, since this is a high for the year and the $300 line has only been breached in the last two or three days. This kind of rally generally sees the odd retrace or shakeout as traders temporarily lose their nerve - a case of two steps forward and one back. But volumes are healthier than they have been for a while, and we haven’t yet seen any frenzy of buy action that signposts a crash is due. With a recent high of $330 (Bitstamp), the best scenario is a consolidation at these levels as the market pauses for breath - rather than getting ahead of itself or bailing to send the price back into the mid-to-high $200s.

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