After the recent record a correction may be due
Over the week bitcoin (BTC) is up 18 percent. Over a month its gain is over 50 percent. Bloomberg reports a big short is growing.
Another article claims that bitcoin’s inability to close above the previous record would indicate bull market exhaustion.
There are also indications of overbought conditions shown by the relative strength index (RSI).
The article claims that the psychological support level is $10,000 and that may be tested although a trendline shows support could be offered around 9,900 levels. Any drop below ten thousand could be short-lived.
As a recent Digital Journal article discussed, on Friday bitcoin prices had been recovering from a slump and it was thought that the price could move sideways over the weekend. However it reached a new high instead possibly in part due to the announcement of the approval of futures exchanges for bitcoin.
Present prices of bitcoin
As I write this on early Monday afternoon bitcoin’s price is $11,211, up .27 percent on the day. There is no sign of the price approaching $10,000. The lowest value today was $10,815 from which the price has recovered by hundreds of dollars.
Bloomberg predicts big short of bitcoin
Bloomberg considers the approval of future exchanges for bitcoin by the CME group and two others will make it much simpler to bet in a decline of the price of bitcoin. Hedge funds that have mostly stayed on the sidelines now will have the opportunity to bid against bitcoin.
Craig Pirrong, a business professor at the University of Houston Texas said: “The futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish. Having this instrument that makes it easier to short might keep the bitcoin price a little closer to reality.”
The gain in value of bitcoin since it began trading in 2010 is phenomenal. One dollar invested the would now be worth more than $1.4 million. A dollar invested in the S & P 500 stock index at the same period would now be worth less than four dollars including reinvested dividends
The CME contracts set to begin on Dec. 18 but the other two have not announced firm dates yet.
Ari Paul, a co-founder of the hedge fund Block Tower Capital said that people who think that bitcoin is a clear-cut short are mistaken: “While some traders are eager to be able to short bitcoin and will do so when the futures are launched, there is a far greater amount of money eagerly awaiting the futures as a vehicle to go long.”
The risk of short-selling
A short seller in essence borrows a security when it is falling in price they hope. They sell it and then hope to replace it later at a lower price and pocket the difference. However, the bitcoin market is so volatile that many short sellers may be frightened to sell short..
In the late 1990’s many short sellers were right but lost out anyway. Aaron Brown a former manager off AQR Capital Management said: “People who shorted the Internet in 1998 were right, but they went broke before they could collect any winnings One of the problems with it, if you believe it’s a bubble or a Ponzi scheme or whatever, it can go on for a long time.”
More regulation is coming
Both the U.K. and some other EU governments are planning to regulate bitcoin and other cryptocurrencies as concerns are growing that the coins are being used for money laundering and tax evasion.
According to the Guardian traders will be forced to disclose their identity a move that would end the anonymity that makes the currency attractive for drug dealing as well as many other illegal activities.
In the U.S., the IRS recently demanded information on some bitcoin users to see if they had been avoiding taxes on their gains as discussed in a recent Digital Journal article.
