Why Bitcoin’s Downward Trend Spells Trouble

[Redtea]

This has been another week of disappointing price action for Bitcoin enthusiasts. On the five day chart, Bitcoin prices have dropped from near $455 down to $445. The good news, if you can label it as such, is that prices had reached $435 on Sunday before recovering on Monday.

For perspective, it might be illustrative to compare recent price action with the historical trend.

As you can see, Bitcoin has spent the bulk of its existence trading for mere pennies. It wasn’t until 2013, just last year, that the insane price hikes kicked in. Most everyone realized the sudden spike up was a speculative bubble that was going to end badly, the way speculative bubbles do.

Any attempt to apply traditional market analysis techniques to Bitcoin is just nonsense. Bitcoin is not a stock, option, currency or commodity in the traditional sense — and trying to apply market analysis techniques, developed for analyzing the trading patterns of actual stocks, options, currencies, and commodities, is not going to yield supportable results. Bitcoins are literally nothing but encrypted blips in a distributed network of computers, that belong to the person holding the proper cypher.

Bitcoin’s value can’t be calculated using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading.
Before anyone thinks I’m dissing Bitcoin, let me remind readers that US currency is also nothing to most people but abstracted blips in a bank’s computer system that can be traded for paper that also has no intrinsic value. The only difference between Bitcoins and dollars is that dollars have the full faith and credit of the United States of America standing behind them, and that actually means quite a lot out in the real world.

I’m not suggesting Bitcoins have no value; I’m saying that a Bitcoin’s value can’t be calculated or analyzed using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading. That statement is required as a backdrop in saying that “investing” in Bitcoin is financial insanity, and the steady decline in prices would apparently indicate that the message is finally sinking in.

Steadily declining prices create a dilemma for Bitcoin that doesn’t exist in other markets. If you buy Bitcoin today, you’re almost guaranteed to lose money on the purchase. If you’re a merchant that accepts Bitcoin, your optimum strategy is to immediately convert the Bitcoin into cash, otherwise you can actually watch your profit margin eroding on the five day chart. The speculative bubble was bad for Bitcoin because it attracted all the wrong types to the market, and set up an equally bad long-term decline that has no bottom. That decline discourages new players from getting involved and, since there’s no theoretical bottom to the market, the number of actual Bitcoin traders is going to continue to shrink until Bitcoin finally finds an equilibrium price. The long-term equilibrium price will likely be some number above $0, but what that exact number will be no one can say.

While dollars face an equally dismal fate in a declining market, the US dollar has the Federal Reserve to prop up its value. The price of gold and silver may decline, but both of those metals have an intrinsic value, to the jewelry industry if nowhere else. If the price of General Electric stock declines, I know the company can restructure, add new product lines, and make other changes to recover and grow. With Bitcoin there’s nothing putting a floor on that price, and no avenue for growth.

The influx of venture capital money and involvement of players like Richard Branson is a clear indicator that there is value in the Bitcoin concept. Right now that value is Bitcoin’s potential for the technology to democratize banking — and that potential is huge, but how do you price that? The simple answer is that, right now, you can’t.

Unless you’re fond of losing money, the wise course is to stay on the sidelines until Bitcoin finds a market niche which will lead to an equilibrium price.



Sources:
http://redteanews.com/2014/05/14/why-bitcoins-downward-trend-spells-trouble/#.U3OazPldXfI



-Redtea
Independent News for the Right-Minded American



redteanews.com

[UglyTroll]

Dead in the water 

[tprogex]

I have idea How You can find bitcoin's correct  price. Simply its avg for all buyers and miners pay for all bitcoins . As Volumes low it means what price is low and only some miners and bots are trading. When Price was 1300 I do some calcs and see what price will drop and get hard support on 400 usd buy using this idea.Bellow USd is US government below btc is huge investors   and miners with some investments which actually not possible to redo, also its easier to protect 5 billion market cap,than Multi trillon usd market cap. And if techincal and fundamental analysys not work here how I get stable profits by trading and using that, Technical analysts working in every place in which acting crowd of humans.

[kireinaha]

[blackhathasher]

such filthy troll bait garbage.

too bad there isn't some group of people who can read and remember everything that trolls write and then judge them based on the content of their writings, to later gauge their future dribble... oh wait... there is...

T H E  I N T E R N E T !

Take your FUD and wade it up in to a little ball and cram it dead in your ass.

Period.

[yayayo]

Bitcoin’s value can’t be calculated using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading.

Bitcoin is valued at market like any other commodity or currency. No need to calculate the value, the market shows it.

Stupid propaganda.

ya.ya.yo!

[serenitys]

The only difference between Bitcoins and dollars is that dollars have the full faith and credit of the United States of America standing behind them, and that actually means quite a lot out in the real world.

I'm sorry, you can't possibly be serious. The full faith and credit of the USA?

The same USA that just bailed out wall street and banking criminals that sent our economy into the toilet? The same USA backing that bankrupted a fucking city? The same USA that still hasn't managed to fix and rebuild New Orleans? The same USA that spends billions a day on occupational "wars" liberation operations? The same USA that has been so irresponsible in mismanaging its finances that about 15 other countries (at count, probably more) have openly announced private trade deals to trade in their own respective currencies, China's deals with Russia, Australia, Germany, EU, and on and on to invest in future technologies, and have issued their own bonds, and have denounced the role of the USD as the world reserve?

THAT USA backing that nobody who is rational on this earth trusts as a credible player anymore...and who are biding time til a better alternative comes along so they can collectively tank the USA without going down with the ship?

Right.

[blackhathasher]

while i am at it... lets talk downward spiral...

the USD/FRN is now just over 100 years old (lets not nit pick over a handful of months).

in that time the USD has lost OVER 97% of it's purchasing power

meaning that a dollar bill in 1913 was worth $1.00 one dollar and now today $1.00 compared to the 1913 dollar is worth a whopping $0.03 -  3 CENTS! just three lousy pennies.

and much of that decline took place since 1995 with a 60% loss of purchasing power.

--------------------------

it would be smarter to sell your house for 100 bitcoins than to sell it for 1 million USD.

THATS A TROUBLING DOWNTREND!

[serenitys]

+1 ^^^

[beatljuice]

Any attempt to apply traditional market analysis techniques to Bitcoin is just nonsense. Bitcoin is not a stock, option, currency or commodity in the traditional sense — and trying to apply market analysis techniques, developed for analyzing the trading patterns of actual stocks, options, currencies, and commodities, is not going to yield supportable results. Bitcoins are literally nothing but encrypted blips in a distributed network of computers, that belong to the person holding the proper cypher.

While I agree that we are looking at a different investment vehicle than there ever has been before, the analysis that has been done has often been just as effective as stock market analysis. Which is pretty much crap also. It's info worth looking at, but don't put your life savings into "chart porn."  

The only difference between Bitcoins and dollars is that dollars have the full faith and credit of the United States of America standing behind them, and that actually means quite a lot out in the real world.

I disagree with you that that is the only difference, or even the most important difference. The biggest difference is that the US dollar has 7 billion people that believe in it as a currency, while we might be lucky if 7 million people believe in Bitcoin. The cool thing here for us Bitcoin believers is that our numbers are growing much more quickly than the believers in US dollars.

If you buy Bitcoin today, you’re almost guaranteed to lose money on the purchase.

First you say you can't believe the analysis, and then you make an absolute statement based on 5 months of history.
  

If the price of General Electric stock declines, I know the company can restructure, add new product lines, and make other changes to recover and grow. With Bitcoin there’s nothing putting a floor on that price, and no avenue for growth.

Companies as big as GE go out of business also, and Bitcoin is currently restructuring, adding new product lines, and making other changes to recover and grow. And what's better about these innovations is that if one doesn't work it doesn't drag the company down as much as it does in a traditional business.

The influx of venture capital money and involvement of players like Richard Branson is a clear indicator that there is value in the Bitcoin concept. Right now that value is Bitcoin’s potential for the technology to democratize banking — and that potential is huge, but how do you price that? The simple answer is that, right now, you can’t.

I agree with you here. We don't know how to price Bitcoin. My analysis is that we have needed the speculators to raise interest in Bitcoin, but now, as we move into more adoption as a currency (though this is still in its infancy) the speculation will continue to have less influence and the bubbles will get smaller.

[piramida]

OP, you seem to like the property of fiat money such that a central body can say "this will now be worth that much", and that's fine, but we here do like a property of bitcoin that no central body can say "this will now be worth nothing" much more than relying on the central body to be kind to us and our fiats. Because they are usually not, they will take your money when they will need to cover their deficit without second thought, and the "beauty" of fiat - without you even noticing. You will see that your same salary gets you a poorer lifestyle, but since it will happen gradually you will blame it on yourself. Get free already Bitcoin can not die, too late for that.

[spazzdla]

Downward trend of sideways movement for two months?!

[Torque]

[RockHound]

Haha, blast from the past - Great movie! 

[segeln]

Any attempt to apply traditional market analysis techniques to Bitcoin is just nonsense. Bitcoin is not a stock, option, currency or commodity in the traditional sense — and trying to apply market analysis techniques, developed for analyzing the trading patterns of actual stocks, options, currencies, and commodities, is not going to yield supportable results. Bitcoins are literally nothing but encrypted blips in a distributed network of computers, that belong to the person holding the proper cypher.

Bitcoin’s value can’t be calculated using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading.
redteanews.com

sorry, but your understanding of market Analysis techniques is very poor.
Market Analysis techniques are analyzing the human behavior in buying and selling stocks,options,currencies and all other different items.
This human behavior is independant from the issues you are analyzing.
Because human behavior is in all markets just the same,that is the reason you can recognize patterns of trading evolving during operating (buying and selling) in the markets.
The japanese kind of displaying and analysing the market movements of Rice merchants in the form of candlestick patterns was found and is originated since 18 th century.
And works great.
Why should those techniques not work in bitcoin markets which are just markets of buing or selling an item (bitcoin)?
 In these bitcoin markets the psychological behavior of the participants is the same as in other markets

[greenlion]

A couple very pertinent suggestions for this poster's publication to attempt to rise out of bush league status --

1) Using first person out of nowhere in an opinion piece like this is the kind of thing that gets you mediocre to failing grades in a 101 college English composition class.

2) Opinion pieces require some amount of reasoning in order to in some way support these huge and embarrassing over-the-top generalizations. You don't have to re-invent the wheel and develop an entire theory of economics from scratch here, but statements like the follow with no substantiation simply make you sound dumb:

Any attempt to apply traditional market analysis techniques to Bitcoin is just nonsense.

Bitcoin’s value can’t be calculated using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading.

Steadily declining prices create a dilemma for Bitcoin that doesn’t exist in other markets.

Basically these are valid topic sentences for a paragraph, but instead of using the remainder of the paragraph to elaborate and develop these ideas, you lose us in some kind of corn maze.

3) Anticipating the reaction of the reader without having actually made any claim yet makes you sound like you're passive-aggressively attempting to manage their thinking. That's a serious turnoff that makes people want to just stop reading. A great example is this paragraph, which basically accomplishes nothing but insult the reader's intelligence for no apparent reason:

Bitcoin’s value can’t be calculated using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading.
Before anyone thinks I’m dissing Bitcoin, let me remind readers that US currency is also nothing to most people but abstracted blips in a bank’s computer system that can be traded for paper that also has no intrinsic value. The only difference between Bitcoins and dollars is that dollars have the full faith and credit of the United States of America standing behind them, and that actually means quite a lot out in the real world."

None of these attributes are necessarily out of place for an informal sort of forum post or discussion, but since this information is being presented as a bona fide article linked to something that appears to be attempting to function as some kind of news site, you are desperately in need of some constructive criticism like this to just rise to the level of at least entry-level English composition standards.