Bitcoin market nearing bottom, but problems remain

In my previous commentary I remarked that a bottom to the Bitcoin crash wasn't likely until the mainstream media began publishing negative headlines on Bitcoin.  Well the negative headlines have just started with the above video journalism piece by Reuters.  The intensity of negative sentiment behind this piece isn't quite strong enough to suggest emphatically that a bottom is in, but it does suggest a confirmed interim bottom is likely near.

On a related note, the apparent imminent bankruptcy of the Mt. Gox exchange has created a torrent of speculation as to the future of the electronic currency.  Experts point to the latest events as underscoring Bitcoin's ultra-speculative nature and lack of transparency.  The e-coin has been condemned by some as being more a commodity and less a currency.  The image problem currently plaguing Bitcoin has only been exacerbated by the Mt. Gox fiasco.

Bitcoin will undoubtedly survive this crisis, and its bear market will eventually end.  But until the dust settles investors are well advised to avoid new commitments to Bitcoin.  We continue to await a confirmed bottom signal from our indicators; for now the Bitcoin bear market remains intact.

Bitcoin’s silent crash

Bitcoin has recently suffered what may be termed a “silent crash” after a stellar performance in late 2013.  

After a blow-out performance in November, the Bitcoin price suffered a sharp pullback in December and spent most of January in a temporary holding pattern above the 900 level before finally sinking under the weight of selling pressure in February.  As of Feb. 14, the Bitcoin price was testing its dominant longer-term 40-week moving average, which answers to the widely followed 200-day MA.  This marks the first major test of a significant trend line for Bitcoin since last July.

The sell-off in the last two weeks has occurred under a veil of near silence among the mainstream media.  The same financial press which so vigorously praised the virtual currency’s prospects earlier this year has largely ignored the slide in value since Feb. 6.  This can be largely attributed to the recent equity market sell-off, which stole the spotlight from other investment vehicles. 

It’s nevertheless unusual that the media continue refusing coverage of the loss of Bitcoin’s value.  This leads us to speculate as to a possible motive.  One possibility is that the hedge funds which recently entered the Bitcoin market are using the decline as cover for accumulating a large stake in the market.  It’s no secret, after all, that many members of the financial press are in the employ (if not the outright ownership) of hedge fund moguls.  It’s therefore possible that the media silence on Bitcoin’s recent crash is bought and paid for by those who intend to ultimately profit from it.

Of course another reason for the lack of media interest in Bitcoin’s latest swoon is perhaps that the virtual currency has been temporarily overshadowed by the rally of the gold price.  Gold’s rally is a testament to its demand as a safe haven among investors spooked by the recent financial market turbulence, as well as the media hype regarding an emerging markets “crisis.” 

Until the media begins talking up Bitcoin’s crash in histrionic tones, investors should be wary of assuming the slide in the currency’s value has terminated.  The Bitcoin bear market is likely to persist until we see gloom-and-doom headlines announcing the currency’s demise, at which time we can justly assume a psychological turning point will be made.