BTC Update Thursday 3rd October

Okay, so this is how it looks when the sky falls in.  Unfortunately technical analysis - nor any other form of market analysis - can cope with the unexpected.   When news of Silk Road's shutdown hit the news wires the price of bitcoin plummeted through no less than 4 support bands in just 4 hours.

Here is how it looked on a chart:

As we write, there has been a sizeable bounce and the market is currently leaning on support at $125.

The key questions, of course, are what this might mean and how might we trade it.

And from this perspective it really does depend on your time horizon.

Active traders will have been taken out of long positions at their loss stops and may even have jumped into shorts.  From our perspective this is probably premature.  The fundamental shock to the bitcoin ecosphere that this news represents is still too new to make sense of the price action and in these circumstances our recommendation would be to stand aside for the time being.

The next 4-12 hours will tell us much. If, on the one hand, the market rallies right back up to where it was, it is likely to trade much higher still over the coming weeks as bitcoin will have proven to the market that demand for it is no longer dependent on its utility for trading in illicit merchandise.  If, however, this does not occur then it is more likely that the market will continue continue to fall to at least the extent of the initial surge.

For investors in bitcoin the scenario is more nuanced.  From a longer term perspective this unexpected bend in the road, as one of our readers termed it - with uncanny prescience - represents an opportunity to pick up bitcoin at a price that until this news hit, looked unlikely to be seen again.  Those with speculative buy orders down at $112 will already be smiling - for the time being at least.  This doesn't, however, alter the fact that the impact of this test of confidence is yet to conclude, so for anyone contemplating jumping in long 'at market' we would recommend 'scaling-in' as it is not yet clear whether the current intra-day rally will continue, and if it falters, better (lower) prices still are likely to be realised moving forward.

Whatever, this is a big moment for bitcoin. And while our fingers and toes are firmly crossed that demand for this commodity is sufficiently robust to shake off the demise of Silk Road, our duty is to position ourselves - and y'all - to profit whatever happens.

What this space...

Rob @ BitScan