The essence of this alert is that the situation is more bullish than not and we don’t suggest closing long positions.
Yesterday, Business Insider’s Rob Wile mentioned a report by one of Wall Street analysts on Bitcoin and its possible impact on other companies. The report discusses both the companies which might gain the most on the development and adoption of Bitcoin and those who might find its growth less than pleasing.
Among the potential winners are Overstock and eBay, both facilitating the shipment of goods to customers (although their business models differ). It seems possible that these firms would be able to charge less in transaction costs which could draw additional consumers.
Other firms profiting from the rise of Bitcoin could be semiconductor manufacturers which might see additional business because of the surge in demand for processors used in Bitcoin mining. Currently, the two leading companies in this field are AMD and Taiwan Semiconductor.
The potential losers would be sought among companies processing payments or transferring money. Visa, Mastercard, MoneyGram and Western Union have already been extensively discussed as possible victims of Bitcoin if they don’t adapt to the new conditions.
Wile also reports that Bitcoin might siphon away flows from precious metals. This seems a little bit far-fetched. There definitely is some overlap between gold bugs and Bitcoin enthusiasts, particularly in terms of their will to stay independent from large government and financial institutions, but right now it’s hard to imagine that gold investors will ditch their physical holdings and become invested in the digital currency.
On the other hand, it is conceivable that precious metals investors might want to further diversify their portfolios. In such case, bitcoin seems to be a natural choice (in terms of independence from the government). Putting a small (!) part of your overall portfolio into the currency might allow you to benefit from diversification. So, the impact on precious-metals related companies remains to be seen.
Now, let’s tune in to the bitcoin market itself and check what’s been going on in it.
Yesterday, bitcoin went up 5.0% on Mt. Gox (compared with the previous close), finishing the day at $857. The initially weak volume turned out not to be a concerned as trading picked up later in the day and the final volume stood at btc 12,414.27, a third consecutive increase in volume.
Today, up to this moment (slightly before 6:30 a.m. EST), bitcoin has been up 2.7% from yesterday’s close, currently trading at $880. The volume has been significantly higher than yesterday in a similar time span – right now it is at btc 4,408.05. Overall, it seems that the currency might be picking up some short-term momentum right now, to the upside.
The above chart shows us that the currency has been moving away from the first warning level at $700 (dashed red line). A break below this level could be the first sign of a change in short-term sentiment. A break below $550 (our stop-loss level, which coincides with the Dec. 18 low at $540, solid red line) would be a more serious indication of deterioration.
So far, the action today has been to the upside. If there are no meaningful pullbacks in the near future, bitcoin might go as high as to the $1,000-1,100 range (solid green line). Our opinion is that we would have to see much higher volume than we have now before we could consider any move significant.
Just as we have pointed out recently, we might see more decisive action in the near future as it seem that investors might be waiting to join any strong trend. Since the most recent action has been on increasing volume and the accompanying moves have been up, the outlook has a bullish skew.
Summing up, both the price and volume support a bullish case at the moment. We don’t suggest closing long positions.
Trading position: long, stop-loss at $550. We are currently waiting for the next big move on significant volume. Remain cautious as the market has been relatively calm recently, which might indicate that more decisive action (either up or down) is just round the corner.
Regards,
Mike McAra
