Bitcoin Rallies Past $350 as FBI Shuts Down Hundreds of Darknet Markets
Bitcoin prices gained $24 dollars after the important $350 level gave way on Sunday. Everyone’s favorite virtual currency rallied to a high of $374.60 and altcoins followed suit. Peercoin broke above $0.80 and Namecoin took out $0.90 yesterday. Let’s take a look at bitcoin’s technical picture and then we’ll go over the fundamental reasons for the rise.
The $350 figure was an important one for BTC. In several of our previous articles we mentioned that a break above would snap bitcoin’s losing streak, at least in the short-term. Sunday’s breakout was followed by a large 6.8% rally that topped out at $374 on Monday. Since then, prices have eased somewhat and BTC/USD is currently trading at $362 per coin.
While the move above $350 and the subsequent rally certainly signal an end to the downtrend, to trigger a sustained rally, bitcoin will need to break the $400 figure, or better yet, the $408 swing high as well. Right below this, the $374-$380 area may provide weak resistance to the bulls. On the downside, while a break below the $345-$350 support would be a cause for worry, BTC will need to move below the October 2nd swing low at $319 to continue the downtrend.
Law Enforcement Shuts Down Hundreds of Darknet Markets
The FBI, along with Europol and the Department of Homeland Security announced that they have arrested 17 people, across multiple countries, in a massive crackdown on what are known as ‘’Darknet Markets’’. The operation dubbed ‘’Onymous’’ lead to the closure of hundreds of online marketplaces including ‘’Silk Road 2.0.’’ The sites allowed the sale of drugs that are considered illegal in most jurisdictions.
Repeat of 2013?
The operation lead many to speculate that we may experience another post crackdown rally, similarly to the one we had last year after the Feds shutdown Silk Road 1. Here’s a chart that showcases what happened last year when the FBI first shutdown the site and 20 days later disclosed that they have seized 144,000 BTC belonging to Ross Ulbricht, the alleged mastermind behind SR1.
In both instances the initial shock lead to a spike lower but this was quickly followed by bids to buy up the cheap coins. The resulting rally took bitcoin prices to a high of $1090 on November 30th 2013 (all-time high for the cryptocurrency).
What’s Different This Time?
But there are a couple of things that are different this time. First, the bitcoin economy today is much more diversified and doesn’t rely on Darknet sales as much. Large companies like Overstock, DISH, DELL now accept bitcoins for payment, as do non-profits like United Way and Wikipedia. Second, Silk Road 2.0, the biggest of the websites that got shutdown last week, only did bitcoin sales of around $8 million per month, much smaller then its predecessor which had revenue of 50-100 million dollars per month.
While I’m not discounting the possibility for a bitcoin rally, especially considering the fact that we are currently trading over 50 percent down this year and the fact that we just snapped a major downspell, I think the impact of the crackdown will be much smaller this time around. As always, keep an eye on the technicals as they will likely be the determining factor going forward.