In short words, we don’t suggest closing long positions.

Yesterday, Ghash.io, a Bitcoin mining pool (a group of entities mining Bitcoin) reached 42% of all Bitcoin mining power, dangerously close to 51%, at which unpleasant things can happen. By design, Bitcoin transactions are verified by the community. However, one entity with 51% of mining power would be able to reverse transactions. In simple words, this means that such an entity would be able to “falsify” the Bitcoin ledger and spend one bitcoin more than once.

While the implications of one group getting close to 51% are clearly worrying, the reaction of the Bitcoin community was pretty quick. Bitcoin miners were warned not to join Ghash.io and the group itself issued a statement in which it said:

(…) We have put a plan in place to see that 51% of all hashing power, will not be maintained by Ghash.IO by executing the following actions:

• We will temporarily stop accepting new independent mining facilities to the Ghash.IO pool.
• We will implement a feature, allowing CEX.IO users to mine bitcoins from other pools. (…)

GHash.IO does not have any intentions to execute a 51% attack, as it will do serious damage to the Bitcoin community, of which we are part of.

Since that announcement, the power of Ghash.io has gone down to 38% which remains significantly higher than the second most powerful mining pool, BTC Guild (18%). We would expect the situation to normalize in the following days, but keeping an eye on the mining power distribution won’t hurt.

Similar situations have happened in the past, with DeepBit hitting 49% in 2011 and BTC Guild going over 40% in 2013. Both were resolved without any transactions being reversed and the current situation is another test for the Bitcoin community. We will continue to keep an eye on the mining power distribution.

The market didn’t display any apparent signs of increased nervousness yesterday.

On Mt. Gox, bitcoin moved down yesterday, to 0.2% lower than the previous day’s close. The volume, initially low, picked up later in the day and eventually amounted to btc 14,051.54, slightly higher than on Wednesday. Overall, the day ended more or less where it had begun and the volume was moderate.

Today, the action has been down (this is being written slightly before 7:00 a.m. EST), but only 1.8% down from the last close. What’s perhaps more significant is the fact that the volume has been visibly lower than yesterday and the day before yesterday. Since the last two moves have been down and on declining volume, if the tendency remains in place, we could expect a reversal.

In spite of the decline yesterday, bitcoin is still above $800 (dashed red line), which is also our stop-loss level. A break below this line could change the outlook to bearish and make us suggest closing longs.

The currency is visibly below $1,068 (Dec. 10 top, solid green line on the chart). If it breaks above $1,000 and continues to go up, it could reach $1,200 (close to the Dec. 4 top).

Since Jan. 2 bitcoin has been trading between $800 and $1,100 and it seems to be stabilizing below $1,000 right now. If this takes place on low volume, we will have a situation with growing tension before a strong move up or down. As usually, a spike in volume would be sign that something’s cooking.

Summing up, the action has been down, but on low volume. In our opinion, this doesn’t change the overall bullish outlook.

Trading position: long, stop-loss at $800. Watch out for growing volume – it might be a sign of a reversal or a further breakdown.

The pre-order period for this service is already underway and will last for another 5 days. Bitcoin Trading Alerts will still be free in this window, but we have an offer which would allow you to make a smooth transition to the paid service. If you sign up for Bitcoin Trading Alerts in the next 5 days, you’ll get 20% off on your first billing.

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Some parts of Bitcoin Trading Alerts will be posted for free even after the paid service has launched but most of the new info will only be accessible with a subscription. We’ll be posting one alert a day and additional alerts along the way if the market gets hectic.

Our next Bitcoin Trading Alert is scheduled for Monday, Jan. 13, 2014. Have a nice and enjoyable weekend. Thanks for staying with us!

Best,
Mike McAra