Bitcoin Trading Alert originally sent to subscribers on September 26, 2014, 11:52 AM.
Cutting right to the chase: no speculative positions.
The U.S. Commodity Futures Trading Commission (CFTC) will hold a panel to discuss Bitcoin-based derivatives, we read on the Commission’s website:
The U.S. Commodity Futures Trading Commission (CFTC) announced today that the Global Markets Advisory Committee (GMAC) will hold a public meeting on October 9, 2014 at CFTC’s headquarters in Washington, D.C.
CFTC Commissioner Mark P. Wetjen is the sponsor of this Advisory Committee.
The meeting will focus on issues related to clearing Non-Deliverable Forwards (NDFs) and the digital currency bitcoin. The meeting will consist of two panels. The first panel will discuss whether a clearing mandate is appropriate for NDFs, with a particular focus on how such a mandate would impact foreign exchange contracts. The second panel will discuss CFTC’s jurisdiction with respect to derivatives contracts that reference the digital currency bitcoin.
The meeting is open to the public with seating on a first-come, first-served basis. Members of the public may also listen to the meeting via conference call using a domestic toll-free telephone or international toll or toll-free number to connect to a live, listen-only audio feed. A video recording of the meeting will be made available on the www.cftc.gov approximately 48-hours after the meeting.
This might be one of the first steps to clarify Bitcoins status as far as the CFTC is concerned. As the main tasks of the CFTC include regulating derivatives markets, the implication here might be that the process of drafting regulations for Bitcoin derivatives might not be that far away.
A set of clear rules on Bitcoin futures and options would be helpful since such contracts could be traded on various markets. This, in turn might provide a cost-effective way for Bitcoin traders to gain exposure to Bitcoin, and to get into and out of the market quicker than would be the case if they actually bought or sold the coins. Another important trait of Bitcoin derivatives could be that they would allow traders to take short positions relatively easily and potentially with greater transparence compared with how the process looks now. Regulations on Bitcoin derivatives could very well set the stage for a proliferation of such vehicles.
The use of derivatives for trading has both advantages and disadvantages. You can read more on that in our comments on how to buy gold and silver.
For now, let’s look at the charts.
On BitStamp the move was decidedly down yesterday, if not in terms of volume, than in terms of the exchange rate. If you recall what we wrote yesterday:
Yesterday, we saw a relatively strong move down, in terms of the exchange rate if not necessarily in terms of volume. The move eroded part of the previous day’s gains and was important as far as the short-term outlook was concerned.
This tendency has been upheld today (this is written after 10:00 a.m. ET) with Bitcoin drifting further down. The move down has now eroded almost all of Tuesday’s gains and Bitcoin even hit $400 earlier today. What do we make of it?
First of all, it seems that Bitcoin is reverting to the recent trend, a trend down. This would make the current outlook bearish. But there’s more. If the recent move up can actually be linked to the PayPal announcement, the bearish suggestion might be even stronger here as this would imply that Bitcoin took a dip in spite of positive news, a sign of weakness. This last point is speculative, however. One way or another, the immediate picture looks more bearish than not.
Today, the bearish short-term outlook was reinforced by a move below $400. One thing that might be bothering is the fact that the volume has declined significantly (this is written after 10:45 a.m. ET), but the recent picture still looks bearish.
At present, as the appreciation we saw on Tuesday increasingly looks like a one-day event, it seems that if Bitcoin stays below $400, it might be in for a move down to $350.
On the long-term BTC-e chart the recent appreciation now looks like a jump up within a decline. Yesterday, Bitcoin slipped below $400 before getting back above this level. Today, the move has been further down, with Bitcoin hitting $388 at one point earlier today.
The action on BTC-e seems to point to more weakness in the short term. We’re betting on a move down to $350 and a possible reversal afterwards. Quite how quickly $350 could be reached and whether the move would be violent or gradual remains to be seen.
Summing up, we don’t support any short-term positions in the Bitcoin market now.
Trading position (short-term, our opinion): no current positions. A long order in place to be executed if Bitcoin drops to $360, stop-loss at $340, take-profit at $600.
Thank you.
Regards,
Mike McAra
Bitcoin Trading Strategist
Bitcoin Trading Alerts
