Bitcoin update

Here is my last post on Bitcoin.

In it I wrote, "... government can very easily and with the stroke of a pen hit anyone holding a electronic currency with a massive tax (bail in if you will) without even spending money on the collection of it."

As for the charting action, I wrote, "I'm looking at the recent chart action and to be honest it is currently leaning toward the bullish side.  The chart had a massive rise followed by a textbook a-b-c retracement to just about the 50% fib."

The implication of that was clearly that if the 1st wave up to over $1k was wave 1 then an a-b-c retracement back to the 50% fib should be considered completely normal in a bull market and that the next expected move should be a 3rd wave up and that it should be a doozy because, based on the size of the 1st wave, that 3rd wave should be at least the same size as the first wave and likely bigger.  Not in % gains of course but in terms of dollar move.  The big % gains are taken by the early movers and that has already happened.  But you could still 5x, 6x your money if you catch the wave 2 low and ride it to the peak of wave 3.  That was and is the implication for this volatile gamble.

Since then, BTC continued to move up to almost $1100 again before forming an ending diagonal with a throw-over.  Shortly afterward, the US government decided to seize the assets of the Mt Gox exchange and to shut it down, basically for competing with the US dollar (although they couched it in different weasel words like they always do).  Like I wrote above, with the stroke of a pen, the government can cause undue market distortions.  This move caused a large drop in the BTC value, but importantly it did not cause a full collapse like it could have.  At least not yet.  In fact, SO FAR I think that from a technical analysis perspective, BTC handled the massive impact of this blow like a champ.  An attack on something new like this by the US federal government is akin to getting shot in the head at point blank range.

At this point, the chart seems like it is building a horizontal triangle.  That would indicate that it is about to have one more wave down, the size of which is hard to predict.  I model one of 3 things happening next, given in no order:

• 4th of c is forming right now, one more small wave down to just below a before bottoming into the real 2 and then bouncing violently back up into 3.  This is the blue path.
• Wave b? shown below is really 1 of 3 and since then we are working on 2 of 3.  We will know this is not the case if the chart goes below a.  Chances that this is the correct model skyrocket if b? is taken out to the upside.  In that case, expect massive gaps up because this would indicate a 3rd of 3rd wave.  It will take some major news to push the herd into that!  The news would somehow have to overshadow/reduce the overhang of the recent US government asset seizure of Mt Gox.  Something would have to occur to make the US government's move either irrelevant or far less relevant.  Remember, the US does not control BTC.  It is truly a global currency.  They can attack the servers but there are places that they can be relocated that are beyond the control of the US unless the US wants to start a global war (like in Russia or China).  In fact, it would be an incredibly smart political move for both of these players to band together and say," we believe that the world needs this kind of choice, we will support it in our countries."  If that happens, get out of the way, BTC is going to skyrocket.  Either that or someone would have to challenge the US feds asset seizure.  I think that will take time so it is not likely going to be the cause of a 3rd of 3rd explosion in BTC price.  I think it will have to be some outside force that basically says "Fvck you US fed, you are increasingly irrelevant".  Don't think this can't happen!  The US empire is crumbling in locked step with the debt Ponzi that we control.  Heck, it might even come from within in the form of the elimination of the debt ceiling (an admission that we never plan to stop increasing the debt).  Another shot in the arm would be the implementation of the proposed Winklevoss Bitcoin ETF.  Its arrival would do 3 things:
• It would mean that Wall St can make a profit on it and thus it would be deemed legal by the US government.
• It would allow smaller denomination purchases of BTC using common trading tools which have built in stop sells, etc. to limit the losses.
•  Gain via the ETF would be completely trackable  thus ensuring the government would get its cut.   Government generally has no problem with any activity as long as it can lay its dirty, corrupt hooks into a part of the profits or jail you if you don't pay up.  In other words the ETF would give control to the control freaks.  If this ETF is not approved then it could be the final blow to BTC.
• The final possibility is a full mania retracement shown in red.  IF this happens then BTC can get a large % pop at the bottom but will not likely skyrocket again.  A busted mania rarely resurfaces.  Once pet rock's valuation crashed, they did not recover.

  Traders will be watching the next moves carefully for signs of a breakout to the upside.