Yet Another Bitcoin Black Eye

Apr 28, 2015 --- (ARCHIVED) Free Reports

Following what can only be described as bizarre action on BTC-E late yesterday afternoon, price has since settled back into the downtrend for another run at 220 $.  We are still in the dark as to what actually happened, but regardless of cause it doesn't look good.  First of all, any market that can spike 20+% multiple times in a matter of minutes obviously does not have adequate liquidity for active trading. Additionally, we couldn't help but notice that these types of flurries of highly volatile price movement have traditionally been warning signs as to the health of an exchange.  Not that this is the case in this instance, but it certainly doesn't give us a warm and fuzzy feeling.  Finally, market activity like this will only help to entrench the idea that bitcoin and crypto is amateur hour and definitely not ready for the major leagues.  It shows how much wood there is to chop before we can even be mentioned in the same sentence as the legacy markets.

So what now?  Well, if we look at this incident through the lens of our previous market update it would appear that nothing really out of the ordinary happened (on Bitfinex at least).  We called for a near term short covering rally up to the 230 $ area which would be followed by a resumption of the downtrend, which is almost precisely what happened.  What it does mean is that BTC-e should be watched with a hawk's eye for any other abnormal activity.

As far as the charts go, all the recent pump did was recharge the short term momentum indicators and run stops to wash out weak hands.  It now appears we can head back down to test the key 210.12 $ mark.  Given all of the uncertainty, we are still advocating neutrality seeing how close to support price lies at the moment, however we don't think it would be a terrible idea to get short for a scalp trade around current levels for a drop back below 220 $.  If 220 $ holds, on the other hand, then we may need to change our tune...