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MAbtc’s Crypto Log #1: Recent Bull Run...Bubble?

Recent bull run—start of another bubble?

It’s October 19, 2013 and bitcoin has been on a magnificent bull run since early July, when it hit bottom around $65 USD (MtGox). It has been on a violent upswing since the second week of October, ranging from about $135 USD (MtGox) on October 8th to $195 USD (MtGox) on October 18th. It has since settled in the high-$170s (MtGox) and mid-$160s (Bitstamp).

Whether this bull run will continue is hard to say at this point—there has been a lot of buying pressure on btcchina and Bitstamp, so I am inclined not to believe that this has much of anything to do with MtGox’s continued payment processing issues. Some analysts think that the run-up—$45 USD (MtGox) and $30 USD (Bitstamp) in three days—was simply too fast, and that this will necessitate a sizeable pullback. I’ve taken some profits in USD and will continue to hold several BTC—as we know, there is a lot of upside risk to selling too many of your coins.

Baidu accepts bitcoin

Some of this may have had to do with the news that Chinese internet giant Baidu began accepting bitcoin for its “Jiasule unit, which provides online security and firewall services.” 1) Bitcoin’s exchange rate certainly climbed on the news and three days later, the price is up ~17-18% on MtGox and ~13% on Bitstamp.

i.imgur.com_etzcioj.jpg

As the article indicates, the Jiasule unit of Baidu is just a small part of its business, but there is no doubt that having such a huge company—market cap $58 billion—with such sizeable brand recognition is a big boost for the legitimacy and acceptance of bitcoin. In terms of magnitude, Baidu is worlds apart from other recognizable business that have accepted bitcoin, like Wordpress—whose acceptance of bitcoin may have sparked the early 2013 bubble.

Increased entry of Chinese speculators

The move coincides with increased activity on Chinese bitcoin exchanges. As you can see in the image below, CNY now composes at least 16% of the exchange between BTC and fiat currency.2)

The article stated that, “Baidu is unlikely to have said it would accept Bitcoins without government approval, and other parts of the company could follow, says Jinyoung Englund, a spokesman for the Bitcoin Foundation.” 3) On this note, the Chinese Banking Regulatory Commission has apparently stated that there are “no plans to introduce regulatory policies for bitcoin” 4). So, it’s clear that for those who are speculating on the future price of bitcoin that all eyes are on China and what is happening in the Chinese bitcoin market.

i.imgur.com_ppfrblo.jpg

Bitcoin bubble?

We’ve seen 30%+ growth—the price has since fallen a bit—over a period of ten days. I have to think that is simply unsustainable. They say that when everyone starts feeling bullish and it feels like the sky is the limit—that’s when the bottom falls out and the bubble collapses. While the recent run-up to $195 USD on MtGox didn’t feel quite as dramatic as the run-up in April—especially since there is now such a spread in price between it and the other exchanges—the price has gained quite rapidly, and may not only correct downwards but collapse to much lower support levels. It’s hard to say—it could also continue to push towards $200 USD and onto a new all-time high. It is bitcoin, after all. As I said, it’s simply too risky to be holding only fiat currency or only bitcoin at a time like this—it could really go either way. Plan accordingly.

2) I say “at least” because it appears that bitcoincharts.com does not track all Chinese bitcoin exchanges.

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