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Bitcoin Trading Alert: RBI Warns of Bitcoin Risks

December 30, 2013, 8:43 AM

In case you don’t have time to spare, we don’t suggest closing long positions at the moment.

On Dec. 24, the Reserve Bank of India (RBI) issued a statement in which it warned of the risks of holding and using bitcoin and stated that it was examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country.

These arguments are nothing new but the idea that the RBI is explicitly cautioning bitcoin users and might come up with legal solutions in the future might have frightened bitcoin users in the country and, one of the major trading platforms in India, suspended its main operations, saying:

Post the RBI circular, we are suspending buy and sell operations until we can outline a clearer framework with which to work. This is being done to protect the interest of our customers and in no way is a reflection of Bitcoin's true potential or price.

The news hasn’t influenced the price of the currency on world markets, so it may seem that either bitcoin users are not that attentive to the RBI’s warnings (maybe they would react differently to actual legal restrictions), or that the possible restrictions have already been priced in.

Either way, we’ll move on to see what’s been going on with bitcoin itself.

On Mt. Gox, bitcoin went up 3.0% yesterday (compared with Saturday’s close), finishing the day at $785.01. At the moment of writing these words (past 5:30 a.m. EST), the currency is at $799.65, 1.9% up from yesterday’s close.

The immediate trend seems to remain up and the volume today (btc 5,208.46 so far) is likely to surpass yesterday’s week figure (btc 6,940.14) and get into the range of moderate volume. Overall, the most worrying factor seems to be the fact that since Dec. 21 the volume has been visibly smaller than it used to be in November and early December. Moves on small volume don’t necessarily display the overall market sentiment.

While this might indicate that some of the investors are out of the market, it might also imply an opportunity as there might be capital waiting on the sidelines to join or ignite the next big move. If we look at November and December, then bitcoin has already corrected 68% of the Nov. 1 – Dec. 4 rally. Since Dec. 18, the general trend seems to be up and bitcoin is up 47.4% since that day and the bottom of $541.00.

The situation in the currency seems to have normalized, at least temporarily, with the price moves not being as wild as before. However, the suspicion that market players might be holding back at the moment implies that we might see more volatility as some of the sidelined capital will get involved once again. That’s why staying tuned to what’s going on in the market is important even as volatility seems to have faded.

Bitcoin price chart - Mt. Gox Bitcoin, BTC

Right now, bitcoin is trading above both the Dec. 18 close (solid red line) and the Dec. 7 close (dashed red line). A break below $700 (which coincides with the Dec. 7 close) would serve as a warning sign. A further move below $550 (which is in the proximity to the Dec. 18 close) could indicate a change in sentiment to bearish.

On the other hand, the next possibly important zone to the upside is the the $1,000-1,100 range where a considerable move up ended on Dec. 10. If the bullish sentiment prevails, the price could go into this range. Again, any significant moves can take little time to be completed since there seems to be a lot of potential buyers and sellers waiting for the trend to clarify.

Summing up, the short-term sentiment seems to be up and we don’t suggest closing your long positions at the moment.

Trading position: long, stop-loss at $550. Since the volume has recently been visibly weaker, we might be close to a considerable move either to the upside or to the downside. Stay tuned for more information.

The usual disclaimer applies. Bitcoin Trading Alerts present the author's opinion and are not investment advice.

Mike McAra

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