Markets

Ignore the Bad Press: BTC/USD Looks Like A Buy

The news in the Bitcoin world this week has been almost entirely negative, obscuring the continued good news around the exchange rate. Attention was focused on the Bitcoin Foundation elections and the subsequent claim by newly-elected board member Olivier Janssens that the organization is “effectively bankrupt”. For many that will come as no major surprise. The Bitcoin Foundation, which numbered now-jailed BitInstant CEO Charlie Shrem and the head of the now infamous Mt. Gox among its five original board members, has been in transition for a while.

Hopefully the new board can inject some stability and allow the Foundation to focus on what is, or should be, its prime role; Bitcoin Core development. The promotion and explanation of the digital currency that has consumed time and resources in the past should now be primarily the responsibility of the businesses that surround Bitcoin. They are the ones that stand to profit; they should bear the risk and cost associated with promotion.

While debate on the future of the Bitcoin Foundation has raged, though, the currency itself has been in much calmer waters. At the beginning of this year, I predicted that Bitcoin’s value against the U.S. Dollar (BTC/USD) would stabilize somewhat in the first half of the year, after dropping to lower levels than the $320-$350 range that was holding in December. So far, so good…

In the last couple of months, BTC/USD has pretty much stayed in a range of 240-290. A 20 percent range for a currency may not look like stability to traditionalists, but during a time of volatility in currency markets generally, and given the history of Bitcoin, it is positively tedious. It is beginning to look like the effects of the bubble in late 2013 have finally washed through the market and, at least to some extent, logic has returned.

Based on that premise, BTC/USD sets up nicely now for a buy.

The 2 month chart (above, from Bitcoincharts.com) shows a pattern of slightly higher support levels following each dip since the bounce off of the 220 low started in February. This would suggest an upward path with support this time at just above 240. At the time of writing, BTC/USD is trading at around 254, meaning that a long term long position here with a stop set to protect against a break of 240 risks around 6 percent. The initial target of a return to the 290-300 level, on the other hand, offers a potential for approximately a 15-16 percent return.

The fact that BTC/USD has barely reacted to the turmoil surrounding the Bitcoin Foundation is a very welcome indication of maturity. Just a few short months ago any bad news about the Bitcoin ecosystem was seen as a huge negative for the currency itself. It now seems, however, that the market is beginning to understand that the businesses attempting to profit from the growing interest in digital currency are separate from the currency itself.

Assuming that attitude is maintained, it will be solely Bitcoin’s fundamental worth relative to the Dollar that will drive BTC/USD in the coming months and if that is the case, then long BTC looks like the position to hold. Last week’s jobs report and weak trade data makes it even less likely that the Fed will raise rates in June and increases the chances of any raises when they do come being only incremental. That, combined with the weak data itself, makes a period of Dollar softness a distinct possibility.

The last six months, however, have been about guessing when the Fed would raise rates and buying Dollars has been all the rage. The fact that “long USD” is about the most crowded trade there is right now means that any sign of Dollar weakness could quickly become exaggerated, and therefore anything priced in Dollars, from BTC to oil to Euros will benefit. That makes 295 look far more likely that 240 in the next couple of months.

There is plenty of bad news out there about the Bitcoin ecosystem, but thankfully the currency has matured enough to where that is not the main driver of price. The Bitcoin Foundation may survive or it may go under, but Bitcoin itself will be fine whatever the outcome. With that in mind, right now fundamental and technical considerations are combining to make BTC/USD look like a decent buy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

Read Martin's Bio