Cutting right to the chase, the situation is still bullish, in our opinion, and we don’t suggest closing longs.
Yesterday, in our Bitcoin alert we wrote that governments would probably start sorting out the tax rules for Bitcoin this year. As it turns out, some of them have already come up with guidelines.
Today, ZDNet reported that Singapore issued tax guidance on Bitcoins. The situation here is even more complicated, since bitcoins can not only be a part of an investment portfolio or the currency the company delivers to its customers, but also a means of paying for goods and services. As such, bitcoins could be subject to other taxes, such as goods and services taxes.
Singapore is one of the first to address these issues. We expect other countries to follow suit in the following months. Any kind of guidelines from the EU, the U.S. or major emerging markets could influence the market, so we’re on the lookout for such announcements.
Now back to the currency itself.
Bitcoin went up 6.7% yesterday from the previous close on Mt. Gox and ended the day at $939.00. The volume (btc 13,749.64) was significantly lower than what we had seen between Jan. 5 and Jan. 7. Overall, a move up on declining volume is not the most bullish development of all, but the volume itself was not tiny, so there were no clear bearish hints either.
Today, the action has been flat (-0.3% from yesterday’s close) and the volume (btc 3,946.04) so far (slightly before 6:00 a.m. EST) has been less than half of what we saw yesterday. The momentum seems to have dried up. This, however, doesn’t necessarily have to bearish.
For instance, on Dec. 1 we saw a significant drop, followed by a smaller move up on weaker volume, which in turn was followed by 2 more days of higher prices, which erased the initial decline. On Dec. 28, we saw a relatively strong move down. The next day, bitcoin partially recovered on lower volume and subsequently went up for another 7 days. What happened in the past doesn’t have to repeat itself in the future, but what we see is that a move up can’t be ruled out at the moment.
Right now, bitcoin is trading above our stop-loss level ($800, dashed red line on the chart) and below the Dec. 10 high ($1,068, solid green line). If the currency breaks below $800, we will suggest closing long positions and look for an opportune reentry. If, however, bitcoin breaks above $1,000, the situation might become bullish, and bitcoin could reach $1,200, close to the level of the Dec. 4 top.
The key thing to observe now is the volume. Any sudden explosion in volume levels could hint at a possible strong move up or down.
Summing up, bitcoin is still above our stop-loss level. The volume has waned but in two recent situations such developments were followed by appreciation in the currency. In our opinion, the outlook remains more bullish than not.
Trading position: long, stop-loss at $800. We’re waiting for the next move on strong volume.
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Regards,
Mike McAra
