Mt.Gox Aftermath: Market Doldrums or Continuation?

Journalist:
February 12, 2014

Monday’s BTC price crash that accompanied Mt.Gox’s public announcement of an indefinite halt on Bitcoin withdrawals has left the market suitably depressed as traders ponder Bitcoin’s future. A Distributed Denial of Service attack seeking to exploit the “Transaction Malleability” vulnerabilities of many exchange wallets followed on Tuesday, but with little effect on price.

BTC has been meandering in a range since coming off Monday’s lows, perhaps indicative of a more cautious and slightly grim mood in the market following the pessimistic sell-off. That this is all Mt.Gox’s fault, is an easy assumption to make, but perhaps too simplistic. Let’s take a wider perspective on events:

Customers of Mt.Gox had endured several months of failed transactions and poor customer relations, and the impasse finally came to a head on Friday when the exchange announced an immediate halt in BTC deposits and withdrawals, pending an announcement on Monday 10 February. Mt.Gox’s tactic of diverting attention away from it’s own culpability in exchange failures by blaming the Bitcoin protocol’s Transaction Malleability flaw left most of the cryptocurrency community staggering and the Bitcoin Core Developers nursing a nasty stab wound in the back. The net effect was that a week-long downtrend in the chart became a strong sell-off and Mt.Gox’s BTC price eventually found a bottom near $500 where the market got a hold on itself.

Meanwhile, at BTC-e the same price action turned into a full-blown rout – printing a low at $102. One explanation is that BTC that could not be sold at Mt.Gox was, instead, sold at BTC-e due to the exchange having maintained the highest sell price during the entire downtrend. In a matter of seconds, price spiked down to $102; triggered hundreds of sizeable buy orders on its way down and thus being slingshot back up to $600. The $600 price level is currently acting as support whilst price challenges $700.

Market-wide Downtrend

Mt.Gox volume has been surpassed by Huobi, Bitstamp and BTC-e (chart courtesy of Bitcoinity.org)

To a greater or lesser extent, the same price action is visible in most BTC charts: Bitcoin/Chinese Yuan, Bitcoin/Rouble, Litecoin/BTC, etc. Something that is worth noting is the fact that the downtrend visible in all Bitcoin paired charts began long before any rumblings started coming from Mt.Gox, so we have to ask whether the BTC market decline since early January is really all due to a single player? It would be an over-estimation to believe that Mt.Gox has sufficient influence over the market, or this degree of esteem. Objective conditions indicate that Mt.Gox is now a mere shadow of its former self: volume of trade passing through the exchange has been lower than that of Huobi, BTC-e and Bitstamp for several weeks. Not only that – Mt’Gox’s volume is lower than it was during equivalent market conditions a year ago , so all the huffing and puffing about “biggest” and “best” is nothing more than hot air and milking of former glory.

A sustained downtrend since Jan 2014 is evident

Social Mood

It would seem that the drop to current price levels across the BTC charts reflects a wider negative market mood that started back in mid-December. Failure, back then, of a strong rally to break above $1,000 around New Year was an initial sign that all was not well. Since then, the market has made successive lower lows that eventually developed into an accelerating downtrend culminating in Monday’s lows.

Today’s charts look no less promising and this is reflected in the general mood across forums and chat rooms. Both cryptocurrency and mainstream media are primarily focusing on the issues that have transpired over the past few days and against this backdrop it may be possible for additional lows to print in the charts. However, it is also a historical feature of markets that whenever mood is at it’s darkest, the seeds of a new uptrend are already starting to sprout.

Please note that CCN has placed Mt.Gox in the list of Banned Bitcoin services.

Last modified (UTC): February 12, 2014 08:31

Venzen Khaosan @venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.