Bitcoin Finds Support And Recovers After Major Exchange Falters Forextv Com

These are indeed difficult times for Bitcoin and cryptocurrencies. Last Thursday, the largest Bitcoin exchange, Tokyo-based Mt. Gox halted withdrawals of customer funds from its trading accounts. The concern spread virally across the internet bringing down the global value of the currency. To make matters worse, on Monday, Mt. Gox revealed what it called a previously undetected technology glitch in the open source software of the Bitcoin protocol, which made it possible to falsify Bitcoin transactions.

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However, a Bitcoin advocacy group called the Bitcoin Foundation disputed that account. Bitcoin Foundation chief scientist, Gavin Anderson says the problems are within the Mt. Gox technology platform.

“The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s highly customized wallet software, their customer support procedures, and an obscure (but long-known) quirk in the way transactions are identified and not due to a flaw in the Bitcoin protocol,” said Anderson.

So what happens now? The value of a Bitcoin has dropped precipitously in the wake of the Mt. Gox debacle. Bitcoin touched a low of approximately $500 on the Mt. Gox exchange, elsewhere it was higher, but still falling in sympathy with the Mt. Gox problems. However, the price has recovered approximately 100 points to the 600 area on Mt. Gox and 700 area on other major exchanges.

But even before last week, the price of a Bitcoin in US dollars was falling from highs around $1,250 made in late November. Price in 2013 saw a very aggressive spike higher and as with other markets, sharp rises are usually accompanied by sharp declines and vise versa. Not to minimize the hurtles still facing Bitcoin, there are many significant ones, this is hardly a market in a free fall.

I have written about Bitcoin and I have speculated that it could conceivably be the “global reserve currency” of the future. I am not so invested in that notion that my opinion cannot change as the facts change, however, if there was a wholesale loss of confidence in this marketplace, it would have been a complete rout…near zero value. That did not happen. In fact, the price found support (see chart below) just above its 200-day moving average on Mt. Gox exchange around $472 (also the 61.8% Fibonacci retracement of the rise from $50 to $1,250).

OK, that is certainly a “rout” by standards of other markets, but not a total devaluation. Someone is buying the dips, and doing it in very large volumes. There is an implied stability to technical support levels, that if we apply to the Bitcoin markets, we may surmise that this sell-off was an expected correction exacerbated by multiple vendor failures as well as a high-profile enforcement action against a well-known Bitcoin pioneer.

As a market observer, I am deeply troubled by the volatility and the performance of major Bitcoin exchanges. However, I am not convinced this translates into a fundamental breakdown of the Bitcoin proposition. After all, this is a proposition that seeks to unseat a $4 trillion dollar a day legacy currency system. With that in mind, this present volatility may prove to be relatively mild. I think the more important story that may come out of this is how Bitcoin found support and recovered and ultimately about its resiliency. That will be proven or disproven in the weeks ahead.