BITCOIN

A Fertile Environment For Disciplined Traders

BY BRIAN SHANNON

Perhaps one of the most surprising stories of 2013 was the

meteoric rise in the value of bitcoin.

Starting the year at $13.50, bitcoin saw a year high of

$1242! Of course, if you followed the action throughout the
year then you know it is incredibly volatile. In fact, after the
high of $1242, the price plummeted to $455 in just 14 days
before staging a recovery rally which brought it back to $800
to close the year out.

2 TraderPlanet Digital Journal TraderPlanet Digital Journal 3

The remarkable price action is the
function of a lot of optimism for crypto-
currencies and an equal or greater
amount of uncertainty about its future.
There are no shortage of strong opinions
on the matter of crypto-currencies
like Bitcoin ($BTCUSD). Bill Gates has
called bitcoin a technological tour de
force. Others have been less optimistic,
former Federal Reserve Chairman Alan
Greenspan said Its a bubble. You really
have to stretch your imagination to infer
what the intrinsic value of bitcoin is.
Wall Street is starting to show some
significant support for bitcoin and that
could be the driver for much higher
prices. In fact, a report from investment
firm Wedbush Securities states that the
price of bitcoin could increase to as much
as $98,500!
Fortress Investment Group a publicly
traded company (FIG) announced on
December 31, 2013 that it is planning
to launch a bitcoin investment fund.
When there is no intrinsic
value or traditional way to
value an asset it will tend to
trade more on emotion than a
more stable asset will.
4 TraderPlanet Digital Journal
This follows SecondMarkets Bitcoin
Investment Trust, a fund which has
attracted over $70 million in its first three
months of operation. Barry Silbert, CEO
of SecondMarket said to Entrepreneur
Magazine Were three to six months
away from Wall Street dollars moving into
bitcoin in a big way. He also said Once
Wall Street starts putting money into
bitcoin were talking about hundreds
of millions, billions of dollars moving in
its going to have a pretty dramatic
effect on the price.
You may have also heard of the
Winklevoss Bitcoin Trust which is stuck
in regulation but plans on launching a
Bitcoin Exchange Traded Fund. Clearly,
Wall Street is starting to notice and if
these projections hold, it still appears to
be very early in the game.
Great For Traders
The fact is, no one can say with any
certainty what the future for bitcoin or any
of the other crypto-currencies is. There
will continue to be wild price movements
in 2014 and that will be great for traders.
Personally, I am very intrigued by bitcoin
for a number of reasons:
1. I am a trader and the volatility is
amazing. It seems to me that there are
a lot of amateurs trading the crypto
currencies and that creates a fertile
environment where an experienced and
disciplined trader can do well. When there
is no intrinsic value or traditional way to
value an asset it will tend to trade more on
emotion than a more stable asset will. The
massive price gyrations in bitcoin can be
a double edged sword, but armed with a
solid understanding of technical analysis
using multiple timeframes, I believe they
can be traded successfully.
2. There are a lot of inefficiencies in
trading bitcoin, Litecoin and other crypto
currencies. I attended the Inside Bitcoin
Conference in Las Vegas last December
to meet with industry leaders and get a
better understanding of the blossoming
industry around the crypto currencies.
I expected to see a lot of Kool-Aid
Drinkers at the event but ended up being
impressed that the attendees were very
level headed. There is definitely optimism
and excitement but it didnt seem giddy
at all. There are still some regulatory issues
which need to be worked which will
make trading options of Bitcoin and other
crypto-currencies more efficient but I met
a lot of people who are well funded who
are working on these solutions. One of
the emerging leaders in crypto currency
trading is San Francisco based Coinbase.
In December, Coinbase announced that
they raised $25 million to grow their
operations; this is on top of a prior round
of finance where they raised $7 million.
These companies are scrambling to get
ahead of what they see as a surge in the
growth for demand of bitcoins.
There are a lot of amateurs
trading the crypto currencies
and that creates a fertile
environment where an
experienced and disciplined
trader can do well.
3. Economics 101 brings us a million
questions about what this whole thing
means. I am a technical analyst and I
believe price action rules all and that is
how I will continue to trade bitcoin, and
other liquid crypto-currencies. I am also
fascinated with the idea of how something
can just get invented electronically
become so widely accepted on a global
basis. I will keep my main thoughts (and
writings) to price action and psychology
of the price movement. Behind the scenes
I will be thinking about: what is money?
What is value? Who should control supply
of money or influence its value? I will also
think about gold, guns and butter and
other deeper thoughts about human
behavior.
TraderPlanet Digital Journal 5
 I plan on holding some Bitcoins as a
longer term investment just in case the
concept really takes off. I also plan on
trading them fairly aggressively to try to
pull some money out and reduce my risk.
I will be analyzing Bitcoin on a weekly
basis in my videos which are hosted at
Alphatrends.net you can watch them
for free every Friday after the U.S. equity
markets close.

This is a weekly chart of Bitcoin for 2013.

Because of the huge price range it is
I wish you all a great 2014
difficult to see all of the price gyrations in all aspects of your lives!
accurately but look at the trading ranges
in the last couple of months, they are
massive!

Brian Shannon is the author of Technical Analysis Using Multiple

Timeframes. He provides daily market analyst at AlphaTrends.net
Follow him on Twitter @alphatrends

E
RELATED READING ER
CLI H
CK

What Are Bitcoins:

The How, Why And Why Not
By Steve Miller (AskSlim)

6 TraderPlanet Digital Journal