Bitcoin Trading Alert: Any Change in Short-term Outlook?

In short: short speculative positions; stop-loss at $657; initial target at $527.

California has postponed its effort to regulate digital currencies, we read on CoinDesk:

The state assemblyman [Matt Dababneh] behind efforts to regulate digital currency businesses in California cited the $65m hack of Bitfinex this week as evidence of the need for tighter industry controls.

In a statement issued following his state's decision to temporarily shelve further regulatory deliberations this year, he said that more time was needed to strike a balance between giving virtual currency businesses a firm foundation and ensuring consumers are protected.

(…)

Dababneh first proposed the bill last year shortly after becoming chairman of the state’s Banking and Finance Committee, and a revised version was once again introduced this year amid resistance from industry advocates.

In remarks, Dababneh credited conversations with "virtual currency experts, consumer organizations" as a deciding factor in the determination to suspend the proposed legislation until January of next year.

The general trend to regulate digital currencies will most likely continue. This is yet another case where Bitcoin regulation is actively discussed by the politicians. The fact that the bill was shelved citing concerns about the quality of the regulation is possibly a positive sign as the politicians might be inclined to give Bitcoin serious thought and not rush into with a half-baked proposition.

On the other hand, Bitcoin regulations are now years in the making and this will not speed up the process. On the whole, we are inclined to wait longer for a sound way to go forward rather than expect a faulty law earlier. The state of New York was first to regulate Bitcoin with a kind of a license. We expect California to follow suit in the next two years, perhaps with a regulation balancing the burden on Bitcoin firms and the protection offered to customers.

For now, let’s focus on the charts.

On BitStamp, we saw a weak move to the upside in the last couple of days. Does this change anything as far as the short-term outlook is concerned? Recall our previous comments:

Possibly the most important development is the breakdown below the 61.8% retracement level based on the June top and the recent bottom. This breakdown now looks verified and Bitcoin didn’t show enough strength on Tuesday to bring the currency back above this level. As such, the situation now looks like we have a failed test of this level behind us (the move from the early August low). Another potentially important feature here is that we don’t really have any important resistance levels until the currency reaches $500.

Bitcoin went up a bit but the resistance level based on the Fibonacci retracement remains in place. We haven’t really seen a move above this level and, as such, the situation is largely unchanged.

On the long-term BTC-e chart, we see a slight change from our previous alert. Recall what we wrote then:

The situation is still very much unchanged. Bitcoin is above the 38.2% retracement level based on the May-June rally but below the 61.8% level based on the decline from the June top to the recent low. This is mixed territory, however, the recent failed move up along with the lack of confirmed breakout above the latter retracement makes the situation more bearish than bullish. Again, if the decline accelerates from now (the odds are it will, in our opinion), there’s not much to stop Bitcoin from falling to around $500.

The change here is that Bitcoin is now back above the 61.8% level. This is a mildly bullish indication. We might see more action to the upside but this might still be too little to tilt the situation into neutral territory. The situation remains bearish at the moment of writing these words (around 12:30 p.m. ET).

Summing up, in our opinion short speculative positions might be favorable at the moment.

Trading position (short-term, our opinion): short positions; stop-loss at $657; initial target at $527.