Bitcoin Has Surged 80% In 1 Month; But Is The Move Exhausted?

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Includes: COIN
by: D. H. Taylor

Summary

Legalization in Japan has created a flood of interest into the cryptocurrency.

In light of the legitimization of Bitcoin through the legislation, asset managers are stepping in to the market.

Latest price move surging above $1,600.00 shows exhaustion in the market as the market turned right back around; profit takers are stepping out.

In April, the Japanese government enacted legislation that made Bitcoin a legal form of payment, a development I have been following. This legitimization has created a massive surge over the past month; Bitcoin (BTCUSD) has pushed from $900.00 a coin to topping over $1,600.00 during that time. This legalization has drawn in real money as asset managers start to pour into the market. The limited supply of Bitcoin means that the price will continue to move higher as more and more players enter the market. It is getting that no sooner than you look at a chart the cryptocurrency prints another new, all-time high.

Currently, in Japan, there are 10 new exchanges that are being planned to come online. The surge in interest, as well as the new regulated environment in Japan, will mean that trading in coins will be relatively more safe. There are two factors contributing to this. First, in order for the Japanese exchange platforms to come online, they must first get licensed by the government. This licensing process will, in effect, remove any questionable business practices. This is what is drawing considerable interest in the cryptocurrency.

The other factor is that when the Japanese government passed the legislation legalizing Bitcoin, it also made trading and investing in Bitcoin exempt from taxation. This removed another barrier keeping individuals out of trading the currency.

And, one CNBC contributor, Brian Kelley, stated:

"The biggest driver right now is you're starting to see institutional investors take a keen interest in the entire sector. I don't think this is hot money. This is real money that's going to sit around and build the new internet".

For Japanese individuals, having an alternative to their own currency is very desirable. Keep in mind that the Bank of Japan is in the midst of a massive Quantitative Easing program. The Bank of Japan has been buying substantial amounts of Japanese government debt to maintain lower interest rate levels on the long end. Eventually, this will have the effect of devaluing the Japanese yen. However, this has been slow to get going with the currency. But once the world economies begin to expand at a faster pace, then all of the work the BoJ has done will dilute the currency significantly. Bitcoin will act as a hedge to the yen's eventual fall. This is why the real money is moving in. Long-term traders buying BTCJPY are going to benefit when the Japanese currency falters. To give a perspective, here is the chart on the Bank of Japan's balance sheet:

Japan has become the second largest place in the world, behind the United States, to trade Bitcoin. The Japanese platforms have supplanted China. There are two reasons for that. First, China has restricted withdrawals from Bitcoin because of the Chinese yuan falling as much as it has; Bitcoin traders were working around government authorities and sending money abroad via Bitcoin. The second reason is that Chinese regulations have withered the volumes being traded in China. In China, the amount of paperwork needed to open an account is prohibitive. In Japan, this is not as much the case. The exchanges are required to be licensed. However, the "know thy customer" agreements were not implemented into the licensing rules. One of the benefits to trading and dealing in cryptocurrency is the anonymity involved.

Japan is quickly becoming a hot-bed for the cryptocurrency. Legitimizing the currency has enabled Bitcoin to surge to new highs over the past several days. As the news of the surges continues to make headlines, more enter into the market. And, with the safety of the regulation in the platforms from the licensing in Japan draws in bigger traders, the currency will continue to accelerate higher. The currency has already moved some 80% higher in just one month.

However, the chartist in me exercises caution. To begin with, I only trade on fundamentals. I ignore the charts to some degree. But looking at today's price movement makes me a little queasy. Bitcoin surged up over $100.00 today. Then, it fell right back down. That tells me a major buy order came in only to hit a wall of sell orders. Keep in mind that Bitcoin has surged over 80% in one month. There are a lot of compelling reasons that the cryptocurrency will continue to move higher. However, it is possible that more profit takers will keep hitting the offer button as continued surges occur. I am heavily bullish on Bitcoin. But after such a massive surge and coincident to the turnaround that was witnessed today, I believe the market has the potential to ease down a bit. I am looking for a healthy entry point.

If we dip down to around the $1,350.00 level again, I am inclined to get involved. As an options trader, I will structure my trades accordingly - Yes, you can trade options on Bitcoin, I use Deribit.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in COIN over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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