Bitcoin Seeks Friends for Long-term Relationship – GSOH and Patience Essential

It’s difficult not to have some sympathy for Bitcoin at the moment. Like the star jock of the football team, who makes a mistake, and finds himself to be “excess baggage” – the guy nobody wants to be around anymore – the main cryptocurrency is a dirty word in investment circles right now. “Oh yeh, Bitcoin – remember that? How much did you lose then?”

Being yesterday’s big thing is difficult. How do you shake off the innuendo, and separate the good from the bad now …

The run of bad karma for Bitcoin – since the highs of December, at 2) in the chart below, has been painful and devastating to many first time investors. Interestingly, anecdotal evidence suggests the majority of investors,  especially those holding small positions, are simply parking their money, and hoping for an improvement in Bitcoin’s future returns. They are not withdrawing their money en masse. This seems to go some way to explaining why Bitcoin is not lower than it is, and, for now, seems to have found a level.

The people cashing in, are ICOs (Initial Coin Offerings) and developers. They need to cash in for marketing, and to fund further tweaks to their crypto operations. Some, of course, are just panicking and simply closing their setups. Others are fearful of recent moves by the IRS (U.S. Internal Revenue Service) and the SEC (U.S. Securities and Exchange Commission) to introduce some form of regulatory, and tax structure, into the crypto equation – and are making their exit before these moves are brought into play.

The whole cryptocurrency “complex” (as the total of all cryptos on the market is known) has lost a staggering $555 billion in the eleven weeks, since the start of the year, in which it has been falling. This is 67% down. Ripple, alone, is down 85%!

This cloud may have a silver lining though. It is well-known that miners use vast amounts of electricity to acquire the codes necessary to break the crypto cyphers – and unlock the currencies. This electricity is expensive – depending on where in the world the miner is based. The estimate of breakeven for a Bitcoin mining operation is $8,038. It stands to reason, a miner who has to pay more for power, than they are making, is running at a loss.

Basic economics says that if supply is reduced, it introduces scarcity, and the price should rise.

Those miners in locations where electricity costs are cheaper, can safely, and profitably, mine down into the $4,000 – $3,000 level. There is evidence to suggest (heard at a major crypto conference in Mexico, recently) some mining operations are trying to set up, together with certain governments, their own dams, and hydro-electric schemes. Nobody would be contemplating such moves unless they saw a very bright future for cryptos as a whole.

There are still other issues looming. The ban on advertising for crypto firms on Facebook and Google will hit hard. Small investors have been the lifeblood of cryptocurrencies – and if they cannot be sold to, it leaves a huge gap in the income streams of both, existing operations, and ICOs.

The IRS is now circling too. The American tax collectors smell blood – they are looking at ways of collecting revenue from investors who made small fortunes in the run-up to Decembers highs – this is regardless of whether they are now nursing huge losses. The only way of avoiding this is by sheltering cryptos within an IRA arrangement – unfortunately, there are very few companies who are able to facilitate this at present.

So let’s take a quick look at the daily chart and see if there is anything emerging.

The long climb up from last September, at 1) is now long forgotten – but it is worth noting the level Bitcoin was then – around the $4,000 level – and the low of February, at 4) when it hit $5,871. These are now both key levels to watch in any further downtrend.

We can see, at 3) the trend is downwards – and despite a brief rally, at 4) followed by some volatility – it has retrenched, and is now falling again, at 5). In the last couple of days, there has been a small push upwards, at 6) but the 21-day EMA (Exponential Moving Average – blue line) has yet to be challenged as resistance.

We still think this downtrend has yet to play out – either at the level of the previous low, at 4) where it was $5,871 – or, as a worse case scenario – way down to the $4000 level, which is the bare minimum, sustainable by most miners.

Should it hit these levels, we think Bitcoin may well make a recovery. We think the “nuclear” option of it going to zero is overblown and sensationalized. Often these recoveries are swift and strong – and may well introduce to Bitcoin, the kind of long-term friends it is looking for.

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.