Bloomberg Crypto Report: Why the Bull Run Can Continue?

Original title: Bloomberg Crypto Outlook–Discounted and Refreshed

Original author: Mike McGlone | Senior Commodity Strategist at Bloomberg BI

Original translation: Bitpush

Contents Overview

Bitcoin: $20,000 or $100,000?

America Wins the Digital Cold War

Top 3 Cryptocurrencies: Bitcoin, Ethereum, Tether

Bitcoin is dormant, continues to grow, and becomes more environmentally friendly

Technical Analysis: Ethereum Bull Run at a Discount

1. The next step for Bitcoin: $20,000 or $100,000?

The trend is upward.

We believe that around $40,000 could be the upper price limit for the crypto bull market break. Ethereum, ranked second, is rapidly moving towards the number one position by market capitalization and has been the main driver of the Bloomberg Galaxy Crypto Index in 2021. Bitcoin is more likely to break resistance and rise to $100,000 than fall below $20,000.

Bitcoin “Nap Time”: $30,000 to $40,000

As we can see, the Bloomberg Galaxy Crypto Index (BGCI) is signaling that the bull run starting in June will begin with Bitcoin at a discount.

Bitcoin has corrected about 50% from its 2021 highs and appears to be establishing bottom support around $30,000. This level is close to last year's closing price and the 12-month moving average. The BGCI is up about 130% in 2021 and has also corrected nearly 50% from its peak of more than 250% in early May. Many of the speculative excesses have been removed and Bitcoin fundamentals are intact.

Ethereum's market capitalization is expected to surpass Bitcoin.

The benefits of diversification need to be emphasized, especially in an emerging asset class like cryptocurrencies. The longer-term trend appears to be Ethereum gaining greater market share relative to Bitcoin. There are bullish fundamentals for both, but Ethereum's fundamentals and use cases are a strong complement to Bitcoin's larger macro store of value properties. The chart below depicts trading volume as a leading indicator driving Ethereum's development, which has reached 50% of Bitcoin in terms of market capitalization. From the beginning of 2021, ETH's 10-day average trading volume has doubled to 80% of Bitcoin. (Coinmarketcap)

Bitcoin and Ethereum may have a unique timing advantage. If the economic rules apply, the combination of reduced supply, historically low interest rates, and massive amounts of money injected into the system constitutes a solid foundation for crypto asset price appreciation. Adoption is still in its early stages, but it is key, and Bitcoin seems to be winning the race, as evidenced by Tesla allocating part of its equity wealth to digital assets.

The chart below depicts Bitcoin’s annual mining supply falling below 1% by 2025 vs. rapidly increasing U.S. debt

Normally, such a backdrop would be ideal for driving up the dollar price of gold, but the old world’s reserve asset is being replaced by digital upstarts. We see few forces stopping this trend and expect it to accelerate.

10,000 Cryptocurrencies Strengthen Ethereum’s Foundation. The increasing number of crypto assets listed on Coinmarketcap is a tailwind for Ethereum, the main underlying token.

The chart below plots the number of tradable cryptocurrencies that have reached the 10,000 milestone, many of which are built on the Ethereum blockchain. The large number of cryptocurrencies, compared to roughly half the number a year ago, could indicate oversupply and excess froth, but Ethereum remains at the top of the crypto gold rush.

ETH currently looks low based on the chart, but we view the number of tradable cryptocurrencies as a general guide to the broader market. Ethereum’s trading range in May from just above $4,000 to just below $2,000 may set key support and resistance for some time, with the upside still the major trend.

2. The United States wins the digital cold war

The US-China Digital Cold War is about as close as the Yankees can win. In a new Cold War, China suppresses new technology for Bitcoin and the open-source code digitization of currency, and we expect the US to embrace it. With proper regulation, the only thing that can be screwed up is the dominance of the US dollar, as demonstrated by Tether, the world's most widely traded crypto asset. We believe it's only a matter of time before crypto ETFs emerge.

The digitalization of money is here: the dollar is king. It is the organic adoption of digital assets, and the dollar as the primary currency, that has us biased more in the same direction, especially as crypto asset prices appreciate. Despite the rapidly rising US debt-to-GDP ratio and quantitative easing, the trade-weighted broad dollar is up about 30% on a 10-year basis, with the Chinese yuan being the highest-weighted currency in the index.

The chart below juxtaposes the roughly unchanged RMB exchange rate against the U.S. dollar over the same period with Tether’s parabolic market capitalization rise.

The fact that Tether has become the world’s most widely traded crypto asset despite the United States’ declining share of global GDP is a sure sign of where things are headed — the dollar’s ​​dominance in the digital world.

US Bitcoin ETF is just a matter of time. As we have seen, the US is highly likely to adopt the technology and properly regulate cryptocurrencies, opening the door to Bitcoin exchange-traded funds in 2021. Crypto assets highlight the shortcomings of authoritarian, centrally planned economies like China, lacking the free flow of capital and public discourse. Considering the Teucrium Wheat Fund (WEAT), the SEC's continued opposition to futures-based Bitcoin exchange-traded products makes little sense.

The chart shows that the 30-day average volume for crypto futures is $2.6 billion, while the 200-day average volume for wheat futures has remained stable at just under $4 billion for about a decade. There is little to stop the dollar value of daily Bitcoin futures volume from surpassing wheat.

High Beta Bitcoin's Advantage Over Stocks?

When Bitcoin fell sharply on May 19, the importance of Bitcoin was demonstrated in almost all markets around the world. As we can see, the advantages of cryptocurrencies compared to the stock market are becoming prominent. Rising stock markets should keep high-beta Bitcoin up, but if the stock market falls, more stimulus measures will boost the fundamentals of the digital reserve asset.

Most assets are increasingly reliant on rising stock prices for support, but Bitcoin could be an exception. The chart depicts a relatively high 12-month Bitcoin beta to stocks of around 2x, down from a peak of around 16x in 2013.

3. Crypto Top 3: Bitcoin, Ethereum, Tether

Only when the tide recedes do you know who is swimming naked, and Bitcoin, Ethereum, and Tether are all wearing “clothes” and shining in the top three positions in the crypto market. Bitcoin is a digital reserve asset, Ethereum is a major ecosystem builder, and Tether (an Ethereum token) represents the world that is rapidly going digital on the back of the dominance of the US dollar. Tether’s rise to the third largest cryptocurrency market cap is one of the most consistent trends in the field of digitalization.

Bitcoin, Ethereum, Tether - the staunch survivors. Consistent strength and performance deserve respect, which is how we view the digitization of money represented by Tether. Despite controversy and regulatory crackdowns, the rising market capitalization of the world's benchmark dollar token has been a consistent indicator of the expanding digital asset ecosystem. The chart below depicts the top three crypto assets on Coinmarketcap in early June: Bitcoin, Ethereum, and Tether.

Tether gained prominence in 2018 when its market cap and trading volume were still rising despite the decline of most crypto assets. Digital dollar adoption is surging, with the Ethereum-based USD token entering the top 10.

Tether and the wave of digitization. As we have seen, Tether and the digitization of currencies (especially the US dollar) reflect the upward trend of crypto assets. Tether's market value has risen by about 190% in 2021, Ethereum prices have risen by 280%, and the Bloomberg Galaxy Crypto Index's nearly 130% increase is mainly due to Bitcoin's relatively poor performance, which has risen by nearly 30%.

Ethereum's rising dominance. In our view, Ethereum's gain in dominance and Bitcoin's decline represent a dichotomy between cryptocurrencies and a trend that has staying power. Ethereum is a key building block for the digitization of finance, while Bitcoin is more of a macro play to replace gold in portfolios. Not many smart contracts or tokens can be built on Bitcoin, but it is moving in that direction to become a digital reserve asset. The chart below depicts Ethereum's market cap as a percentage of total market cap.

4. Bitcoin is dormant, strong, and more environmentally friendly

What happened to Bitcoin? It will be more powerful, more environmentally friendly and less scalable. In our view, the reason for Bitcoin's recovery is the continuation of the bull market and the inevitable path to $100,000. The market was a bit overheated in April, and one of the main factors of the cryptocurrency correction - excessive energy use - represents the strength of the world's largest decentralized network. China's restrictions instead promote the benefits of Bitcoin and shift energy to renewable energy.

Bitcoin's fundamentals are solid in 2021. At the end of 2020, Bitcoin's historical trends suggested that the cryptocurrency would move significantly higher in 2021, and this is indeed the case. Bitcoin rose about 35% by May 24 of this year, becoming a bit too high near $65,000, but in the context of a decline of about 50% from its peak, it found multiple layers of support below $30,000.

The chart below depicts a key part of Bitcoin’s fundamentals in 2021: In 2020, 260-day volatility fell to its lowest level ever compared to most major asset classes, especially the S&P 500. Combined with last year’s supply reductions, migration into institutional portfolios, Ethereum futures, and the launch of ETFs in Canada and Europe, we believe Bitcoin has more potential to move toward $100,000 than remain below $20,000.

$100,000 in 2021 is in line with the criteria. The chart below depicts the potential path of the cryptocurrency towards resistance around $100,000. Similar to the large rallies in 2013 (55x) and 2017 (15x), the supply reduction in 2021. The 2020 halving takes place against the backdrop of unprecedented global fiscal and monetary stimulus and institutional preference for Bitcoin allocations. The likelihood that the cryptocurrency will become a digital reserve asset and remain on its charted course for the better part of the past decade is increasing.

Another point of support comes from the recognition of new asset classes. Gold may be losing its relevance, so diversification may just be prudent.

What Could Take Bitcoin to $100,000? — Following Ethereum. If Bitcoin catches up to Ethereum’s performance in 2021, the top-ranked cryptocurrency will be on its way to $100,000. The chart shows that as of May 24, the Bloomberg Galaxy Crypto Index (BGCI) is up about 110%, with Ethereum up 230%. In comparison, Bitcoin’s roughly 30% gain looks relatively flat. Acceleration, staying the same, or a reversal are three possible options, and we see about a two-thirds chance of favoring: BGCI rising.

Ethereum may represent the next level of innovation, surpassing the tech-heavy Nasdaq. The second-largest cryptocurrency is becoming increasingly glamorous as a cornerstone of the cryptocurrency market and fintech, which is rapidly digitizing as the supply of Ethereum decreases. Coupled with the shift to less intensive proof-of-stake, Ethereum is on solid ground.

5. Technical Analysis: Discounted Ethereum Bull Market

Ethereum is the premier platform for cryptocurrency and decentralized finance, and our analysis shows that Ethereum is trading at a discount amid a prolonged bull run. Looking like Bitcoin in 2017, with a slight upside versus the broader market, Ethereum has removed excess speculation and should consolidate in the $2,000-4,000 range for a while.

$2,000-4,000 could be the sweet spot for Ethereum. Ethereum has a price advantage over Bitcoin, the global digital reserve asset that is expected to reach six figures in 2021. Ethereum was just above $4,000 in mid-May, but now looks like a discounted bull run after correcting by about 60% and about $2,800 on May 26. The chart depicts ETH returning to an optimistic trajectory, following Bitcoin's 2017 price action. Similar to Ethereum at the beginning of this year, Bitcoin started 2017 at about $1,000 and peaked just under $20,000. Ethereum could remain in the roughly $2,000 to $4,000 range of May until October and follow a similar upward path to Bitcoin in 2017.

Discounted Bull Run: Ethereum Falls to $2,000. Relative to the broader crypto market, ETH’s price has approached levels that suggest it will struggle for some time. The chart plots ETH’s ratio to the MVIS CryptoCompare Digital Asset 100 Index, just below its 2017 peak. In June of that year, Ethereum reached $350, corrected about 60%, and then peaked back up in November, and we see similarities, ETH has fallen back 60% to just below $2,000 and emerged from the bull run at a discount.

Ethereum is the main performance leader of the market, with the overall trend upward, with good support around $2,000 and a reasonable pressure level limiting its further bullish movement at $4,000.