Microsoft added bitcoin as a payment option for funding Microsoft accounts on the 11th of December. This allows Microsoft users to purchase digital products from the Windows, Windows Mobile and — most notably — Xbox market places. The payments are being processed by BitPay.
This is obviously a very bullish announcement for bitcoin. However, as 2014 has clearly demonstrated, fundamentals and positive news do not necessarily lead to sustainable price rallies. This post will explore the considerations traders should make in-light of the Microsoft announcement.
Will this be a repeat of PayPal?
Bitcoin rallied very sharply from $339.80 to approximately $365 immediately after the Microsoft announcement, squeezing shorters along the way. After rallying, the price has seen some profit-taking but has held above $355 for the most part.
On /r/bitcoinmarket’s daily discussion, similarities were identified straightaway with PayPal’s announcement in September: that the payment processor will be partnering BitPay, Coinbase and GoCoin.
As the above chart demonstrates, PayPal simply put the brakes on the downtrend, rather than reversing the trend. The question traders should be asking themselves is: will things be different this time?
Technical analysis round-up
Already, the chartists have been busy modeling how the price rise fits in with the wider bear market. The charts are currently giving mixed evidence, with indicators that the price may rally further or continue to follow the downtrend.
Bullish indicators
Excited_by_typos declared ‘RIP downtrend’ with his chart showing that the vertical candlesticks have faced very little resistance. At least for the next few days, the price should stick above $350, even with some profit-taking.
Foxevv took a long-term perspective with his analysis. It appears that the announcement occurred at the same time long-term support was reached. This helped fuel the rally and may be the ‘second-bottom’ investors often like to see, validating the start of early-stage bull markets.
Bearish indicators
The more pessimistic traders have been following Elliott Waves closely.
Over at TradingView, User100000's chart shows that the announcement coincided exactly at the start of a new Elliott Wave sequence, whereby the price will rally slightly before testing a new lower low. Furthermore, the rally has not broken through any meaningful upward resistance.
Unapologetic_Capitalist has charted the same trend, with a short-term perspective. If his chart is correct, the price rally immediately following the announcement marks the completion of the second wave. This indicates that the price may follow User100000's chart in a shorter time span than initially predicted.
Fundamental analysis
Charts alone only tell part of the story. Microsoft accepting bitcoin is a very important milestone for the currency, regardless of whether this is reflected in the price or not. Hence, traders with a long-term horizon — in particular hodlers — have good reasons to be very bullish:
- Microsoft adds further credibility, which should encourage Bitcoin skeptics to question their views.
- The mainstream media have given favorable coverage of the news, with notable publishers including Tech Crunch, PC World, Market Watch and even the BBC.
- Bitcoin now has large exposure to a younger-age group (Xbox gamers), who have been more open-minded about the potential of digital currencies.
- There is now pressure on other corporations to accept bitcoin. Microsoft, Dell and NewEgg show there is little reason not to accept bitcoin. Soon other major businesses may fear being perceived as out-of-touch or slow to embrace change.
However, Microsoft, in theory, may create more selling pressure as they convert their bitcoin sales into USD via BitPay. Having said that, Coinbase have previously denied that merchants have a significant effect on the price. Perhaps, the selling-pressure is just a self-fulfilling prophecy?
One last point to consider is that Microsoft accepting bitcoin — only in America — is not a great use-case. Namely, there is little reason for consumers to use bitcoin to spend at Microsoft marketplaces — this may change if Microsoft decides to pass on payment processing cost savings to customers.
Conclusion
Overall, there is ample evidence to justify going either long or short at this stage. Looking at pure support/resistance, bulls should feel confident that the downtrend will be at least slowed down, in a worst-case scenario. However, if one believes Elliott Waves are reliable indicators, then it looks like a new low will be found before the end of the year.
