Market Weekly: Bitcoin Bulls Return in Wake of BearWhale Slaying

Traders appear to have been reinvigorated by blood in the water this week in the aftermath of the slaying of the 'BearWhale' last Monday.

The bitcoin price was $327 at the start of last week and it was trading for $370 at the week's end, according to the CoinDesk Bitcoin Price Index.

After weeks of tepid trading volumes, bitcoin exchanges showed a surge in orders, hitting 642,000 BTC on 9th October. This almost topped the 657,000 BTC in total trading volume at the height of the buying activity as the massive sell order of 26,000 coins was unloaded by the so-called BearWhale on the market on Sunday.

This makes the week one of the most active trading weeks in months. The last time this much trading activity was recorded on the exchanges was eight months ago, where peak trading volume was 711,000 BTC on 25th February.

The price then was $534, according to the CoinDesk BPI. It was on its way down from the heights of January, plunging from $850 at the start of the month to $563 by the time March rolled around. That was the start of relatively range-bound trading until another sharp drop at the end of March.

It's no surprise that trading volumes have tapered sharply after Thursday's peak. Volumes dropped by 30% the day after this peak and have continued to decline over the week. Exchanges recorded only 147,000 BTC in trades yesterday, or about a third of where volume stood at the start of the week.

While the 'big three' Chinese exchanges continue to dominate the amount of trade in the BTC markets, with OKCoin leading the way and BTC China bringing up the rear, exchanges with less volume are still competing for commission fees.

One such rivalry – in trading volume terms, at least – is unfolding between Bitfinex and Bitstamp. The former is the Hong Kong-based exchange that provides a suite of tools for the sophisticated trader, including trading on margin. It has emerged as a strong contender with consistently healthy trading volumes.

While Bitstamp is often viewed as a benchmark exchange, trading volumes there have diminished over the months. Bitfinex, meanwhile, appears to be taking up the slack, as it continues to roll out new tools and products for active investors.

The gap in volume between Bitfinex and Bitstamp has widened this week. On 6th October, Bitstamp traded 69,542 coins on its platform while Bitfinex saw 55,925 coins traded. Yesterday, however, Bitfinex recorded 20,819 BTC worth of trades for the day to Bitstamp's 14,905 BTC.

Market watchers continue to be bullish on the bitcoin price. The trading newsletter from BitMEX, a derivatives exchange in Hong Kong run by former Citi prop trader Arthur Hayes, recommends building a position around the $330-$350 price target in the near-term. As the price plummeted at the start of the week, Hayes urged newsletter subscribers:

Long-only fund Pantera Capital, meanwhile, applies some cyclical analysis to the bitcoin price in its latest monthly newsletter (PDF). It finds that September 2014 marked the end of bitcoin's longest bear cycle, with the price declining 64% over a nine-month period.

More cheerily, Pantera observes that bitcoin bull cycles have historically returned a whopping minimum of 3.3 times the capital invested.

Martin Tillier, the NASDAQ's resident markets watcher who has taken a shine to bitcoin, puts the recent bitcoin price decline down to US dollar strength. Tillier maintains that bitcoin naysayers have it wrong, although he concedes bitcoin may well have been over-valued:

The last week has also seen some positive signs for wider bitcoin adoption. The US futures regulator was heard making the right noises about bitcoin regulation on Friday's panel discussion on cryptocurrencies in Washington, DC.

A Philippines congresswoman has introduced a bill for an 'e-peso' that could pave the way for greater digital currency adoption in that remittance-heavy country. The bill calls for e-peso to be made available at all domestic bank branches.

Bull image via Marcio Jose Bastos Silva / Shutterstock.com