Note from the Author: Next week’s analysis might be late due to attending the now controversial TNABC in Miami. Please see (@Tone_LLT) for more timely updates throughout next week on price developments and latest charts.

Last Week’s Review

Last Week we concluded with the following:

It is impossible to say at this moment whether the US$255 low will be it for the year, but it sure does not feel like it. The US$275 low in October had a stronger reversal so most likely we will see lower lows in the very near future. For the time being however, this oversold condition needs to be relieved so a bounce here back to US$300, US$315 (point of the breakdown) and even US$330 (50-day SMA) is the most likely outcome.

Two additional scenarios in order of higher probabilities

Bearish: Since we are looking for a bounce to at least US$300, the move is proven wrong upon visible new lows. Now that we have even established US$260 as a short-term higher low, those looking to pick up bitcoins here have a line in the sand they know proves the reversal false. If new lows are created, then it’s open season on the panic and we can see US$200-225 very quickly. There is really nothing technically stopping the slide right now from reaching much lower levels.  This situation is the result of going straight up from US$85 in October 2013 to over $1,200 just 2 months later.

Bullish: Nothing really bullish to consider. Best-case scenario right now is to reach the 50-day SMA, which is dropping quickly and should be at US$330 in a few days. Unless the Euro Implodes or Amazon & Ebay chose to accept only bitcoins with no conversion into fiat, let’s just hope for some stabilization before dreaming of the Moon.

The rebound took place right on schedule even in spite of the Bitstamp situation. The rebound however, only met the very first target of US$300. It was very disappointing that it was what the entire counter trend move had, but all we can do is analyze the charts and try to gauge the mood of the community. The big question that needs to be answered going into next week is whether the recent low of US$255 will hold or are we in for a major level of hurt.

As usual, we will look at the weekly chart for a long-term picture

We are still sitting right on top of the downward sloping trend line, so until it is breached, we will continue to lean ‘and perhaps pray’ for a reversal in prices any day. The margin of error, however, is incredibly thin. There is almost no support under US$250 and if we start to fall, the selling can really accelerate quickly. George Samman of BTC.sx has written about this possibility earlier this week.

Fundamentals & News

As usual we present 3 good roundups for those too busy to keep up with it all:

The big news this week was of course Bitstamp and the news of the hack that took place compromising their hot wallets. Bitcoin exchanges have seen their share of issues over the years, but in this case, looks like the damage has been minimized.

As usual, the advice here will be the same, anyone who was in a situation where they could have potentially lost more than 15% of their bitcoins, has entrusted a 3rd party with way more bitcoins than they should. This is still a very young industry that just celebrated its 6th birthday, where for the first 3 it was virtually irrelevant.

There are several things to take a way from this incident. Those that trust Bitstamp, will point to the fact that they will now be more secure than ever and news has already came out that Multi-Sig wallets are being implemented for hot storage. On the flip side you can say that it’s time to move your bitcoins to a different exchange or there will be a need for a more secure and professional trading operation if this industry ever intends to entice Wall Street.

In other news that seems to be sweeping the industry, all the controversy surrounding Josh Garza will come to a climax this upcoming weekend at the conference in Miami. By now it is pretty clear that all the statements surrounding PayCoin was just hype and this was mentioned last week as well. Also If the advice here that only 15% of your bitcoin holdings should be put at risk on an exchange, then probably no more than 5% should be diversified into any new altcoin. Bitcoin was no different at any point of its history and anyone who invested more than 5% of their net worth into it, should have also been considered totally insane at the time even if it did work out. It does not matter whether it was at a value of 10 cents or US$1,000, speculative investments should always be comprised in amounts you can afford to lose. Those that did buy Bitcoin at the very top might be disappointed at the moment, but if they followed common sense, they are not financially ruined.

As for what it all means for Bitcoin, well, it’s not good on multiple levels. First it brings negative incidents to the industry and we all know how the Main Stream Media loves to only report on the problems currently in this space. Also projects that mostly require bitcoin holders to buy into them add to selling pressure of bitcoins and hence lower prices. Whether it is a hyped scam coin of the week or a perfectly valid Bitcoin 2.0 initiative, when bitcoins are used to buy into them the receivers may keep some but they will certainly liquidate a fare chunk in order to pay expenses.

Just like merchants that are accepting bitcoins but have no interest in holding on to them, the only way the price can hold up under this scenario is if new believers start entering the ecosystem. This has been talked about here for over 6 months and was the main argument for the bitcoin price hitting new lows if PayPal was to get in on the action.

“Bitcoin will see exponential adoption once the sovereign debt bubble pops. Look for signs coming out of Europe towards the end of the year.”

            --Tone Vays

Daily Overview

Here is the usual one-year look back using daily candles.

We are sitting at the identical price as last week US$270, but this time it is at a much weaker position. You will notice that the chart has a horizontal black line at the level of last week’s lows so until this line is breached, it should not be assumed the price is ready to drop further. We can still reverse at any moment and reach one of the additional targets of US$315 or a bit higher but the odds of that have deteriorated greatly. If new lows are made, there is a clear downside target around US$200-210 zone and in all prior cases, it has not taken the price long to reach visible bearish targets.

The Short-Term zoomed in view does not have any more bearish targets to look for. The line in the sand sits at US$255 so until it’s clear that a day will finish under it, it is hard to speculate that a big drop is imminent. Treat the area between US$255 and US$285 as the neutral zone. Anything above US$285 at this point is a good sign to reach that quickly dropping 50-day SMA. There is also room on the RSI to rise into that 50 level and meet the green trend line. An ideal technical move would be for a price rise into the US$315 mark where it gets rejected by the Moving Average and heads lower, but as we all know, trading moves are never ideal.

Conclusion

Bitcoin is in no man’s land sitting here at US$270. The advice to those that dare take it is to do nothing while it finds a direction and just watch as it tries to navigate the US$255 – US285 range.

Two scenarios in order of higher probabilities:

Bearish: The odds are slightly leaning to more pain in the near future.  This could be starting tomorrow as the price drops under our US$255 floor or perhaps even a month from now but there is definitely no indication that we have hit the bottom. Once prices drop under the US$250-255 range, there is open air going down to the US$200-210 zone.

Bullish: We are still keeping an eye on that counter trend rally from the US$255 low. It is not looking good, but the possibility of moving back up to the US$315 area before the downside sets in is technically still alive.

Reference Point:  Sunday Jan 11 11:00 pm ET, Bitfinex Price US$270.

About the author

Tone Vays is a 10 year veteran of Wall Street working for the likes of JP Morgan Chase and Bear Sterns within their Asset Management divisions. Trading experience includes Equities, Options, Futures and more recently Crypto-Currencies. He is a Bitcoin believer who frequently helps run the live exchange (Satoshi Square) at the NYC Bitcoin Center and more recently started speaking at Bitcoin Conferences world wide. He also runs his own personal blog called LibertyLifeTrail.

Disclaimer: Articles regarding the potential movement in crypto-currency prices are not to be treated as trading advice. Neither Cointelegraph nor the Author assumes responsibility for any trade losses as the final decision on trade execution lies with the reader. Always remember that only those in possession of the private keys are in control of the money.

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