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Bloomberg Crypto Report: Why Can the Bull Market Continue?

彭博社

2021-06-04 03:53

Read this article in 22 Minutes

Ethereum is trading at a discount in the midst of a sustained bull market.

Original Article Title: "Bloomberg Crypto Outlook – Discounted and Refreshed"

Original Article Author: Mike McGlone | Bloomberg Senior Commodity Strategist

Original Article Translation: BiTuip

Content Overview

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

The US Wins the Digital Cold War

Crypto Top 3: Bitcoin, Ethereum, Tether

Bitcoin Gathers Strength, Continues to Rise, More Environmentally Friendly

Technical Analysis: Discounted Ethereum Bull Market

I. Bitcoin's Next Move: $20,000 or $100,000?

The trend is upward.

We believe that around $40,000 may be the price ceiling for the crypto bull market resting period. Ethereum, ranked second, is rapidly moving towards the number one market cap position and has been a key driver of the 2021 Bloomberg Galaxy Crypto Index. Bitcoin is more likely to break through resistance and rise to $100,000 rather than fall below $20,000.

Bitcoin's "Resting Period": $30,000 to $40,000

As we have seen, the Bloomberg Galaxy Crypto Index (BGCI) signaled the start of a discounted Bitcoin bull market from June.

Bitcoin has retraced approximately 50% from its 2021 high and appears to be establishing a bottom support around $30,000. This level is close to last year's closing price and the 12-month moving average. The BGCI rose about 130% in 2021, experiencing a nearly 50% retracement from the peak of over 250% in early May. Much of the excessive speculation has been cleared out, and Bitcoin's fundamentals remain intact.

Ethereum's market cap is poised to surpass Bitcoin's.

The benefits of diversification need to be emphasized, especially in emerging asset classes like cryptocurrency. The longer-term trend seems to favor Ethereum gaining a larger market share relative to Bitcoin. Both have bullish cases, but Ethereum's fundamentals and use cases serve as a strong complement to Bitcoin's more macro store of value attributes. The chart below depicts trading volumes as a leading indicator driving Ethereum's development, and in terms of market cap, Ethereum has reached 50% of Bitcoin's. Since the beginning of 2021, ETH's 10-day average trading volume has doubled, reaching 80% of Bitcoin's. (Coinmarketcap)

Bitcoin and Ethereum may have a unique timing advantage. If economic rules apply, the supply reduction coupled with historically low interest rates and massive fund injections into the system have formed a solid foundation for the appreciation of crypto asset prices. Adoption is still in its early stages, but it is crucial, and Bitcoin seems to be winning the race, as evidenced by Tesla allocating part of its treasury wealth to digital assets.

The chart below illustrates Bitcoin's annual mining supply dropping to below 1% by 2025 VS the rapid increase in US debt.

Typically, such a backdrop would be ideal for boosting the price of gold against the dollar, but the old world's reserve assets are being replaced by digital newcomers. We can hardly see any forces stopping this trend and expect it to accelerate.

10,000 cryptocurrencies have solidified Ethereum's foundation. The number of listed crypto assets on Coinmarketcap continues to grow, a tailwind brought by Ethereum, the primary token.

The chart below depicts the milestone of reaching 10,000 tradable cryptocurrencies, many of which are built on the Ethereum blockchain. Despite the abundance of cryptocurrencies, which may indicate oversupply and excessive speculation compared to about half the number roughly a year ago, Ethereum still holds a top position in the cryptocurrency gold rush.

Based on the chart, ETH currently appears to be at a low, but we consider the number of tradable cryptocurrencies as a general guideline for the market. Ethereum's trading range in May ranged from slightly above $4,000 to just under $2,000, potentially setting key supports and resistances for a while, with the uptrend still prevailing.

II. The US Wins the Digital Cold War

The dynamics of the US-China digital cold war are comparable to the Yankees winning. In a new cold war, China suppressed the new technology of Bitcoin and the digitization of its currency's open-source code, and we expect the US to embrace it. Through proper regulation, the strengthening of the dollar's dominance, as proven by the world's most widely traded crypto asset—Tether—almost foolproof. We believe the emergence of crypto ETFs is only a matter of time.

The currency is being digitized: the dollar reigns supreme. It's the organic adoption of digital assets, along with the dollar as the primary currency, that tilts our bias towards similarity, especially in the appreciation of crypto asset prices. Despite the rapid rise in the US debt-to-GDP ratio and quantitative easing policies, the trade-weighted broad dollar index has risen by about 30% over the past decade, with the renminbi being the most heavily weighted currency in that index.

The following chart juxtaposes the relatively stable Chinese Yuan to US Dollar exchange rate with the parabolic market cap surge of Tether over the same period.

Despite the diminishing share of the US in global GDP, Tether has emerged as the most widely used cryptocurrency globally, signaling a trajectory where the dollar asserts its dominance in the digital realm.

A US Bitcoin ETF is only a matter of time. As observed, the US is highly likely to adopt the technology and regulate cryptocurrencies adequately, paving the way for a Bitcoin exchange-traded fund in 2021. Cryptocurrencies highlight the flaws of authoritarian, centrally planned economies like China, lacking in capital mobility and public discourse. Given the stance on Bitcoin futures-based products such as the Teucrium Wheat Fund (WEAT), the SEC's continued opposition seems baseless.

The chart demonstrates that the 30-day average trading volume of crypto futures hits $2.6 billion, while wheat futures have hovered below $4 billion on a 200-day average for almost a decade. There is little to stop the daily dollar value of Bitcoin futures trading from surpassing that of wheat.

The High Beta Bitcoin Advantage Over Stocks?

When Bitcoin experienced a sharp drop on May 19, nearly all global markets proved the significance of Bitcoin. As seen, the superiority of cryptocurrency over stocks is becoming evident. Stock market uptrends should sustain the rise of high beta Bitcoin, but if stocks decline, more stimulus measures would boost the foundation of digital reserve assets.

Most assets are increasingly reliant on stock price hikes for support, but Bitcoin may emerge as an exception. The chart illustrates a relatively high 12-month beta coefficient of Bitcoin to stocks at about 2 times, lower than the peak of around 16 times in 2013.

Three, Crypto Top 3: Bitcoin, Ethereum, Tether

Only when the tide goes out do you discover who's been swimming naked, and Bitcoin, Ethereum, and Tether are all wearing their "clothes," shining brightly in the top three positions of the crypto market. Bitcoin is the digital reserve asset, Ethereum is a major ecosystem builder, and Tether (an Ethereum token) represents a swift move towards a digitized world underpinned by the dominance of the dollar. Tether's rise to the third-largest cryptocurrency market cap is among the most consistent trends in the digital space.

Bitcoin, Ethereum, Tether — Resilient Survivors. The unwavering strength and performance deserving of respect is how we view the digitalization of currency exemplified by Tether. Despite controversies and regulatory crackdowns, the market value of the world's reserve stablecoin has consistently served as a growing indicator of the expanding digital asset ecosystem. The chart below illustrates the top three crypto assets on Coinmarketcap in early June: Bitcoin, Ethereum, and Tether.

While most crypto assets experienced a downturn, Tether secured its position in 2018, with its market cap and trading volume still on the rise. The adoption of digital dollars is surging, with Ethereum-based dollar tokens breaking into the top 10.

Tether and the Digitalization Wave. As we've seen, the digitalization of Tether and currency (especially the dollar) is a reflection of the rising trend of crypto assets. Tether's market cap surged by around 190% in 2021, Ethereum's price rose by 280%, Bloomberg Galaxy Crypto Index saw close to a 130% increase mainly due to Bitcoin's relatively weak performance, which rose by nearly 30%.

The Ascendancy of Ethereum. In our view, Ethereum's ascendancy alongside Bitcoin's decline represents a dichotomy among cryptocurrencies and is a persistent trend. Ethereum serves as a key building block for financial digitalization, while Bitcoin is more oriented toward replacing gold in macro portfolios. Not many smart contracts or tokens can be built on Bitcoin, but it is evolving in that direction to become a digital reserve asset. The chart below depicts Ethereum's market cap dominance as a percentage of total market cap.

IV. Bitcoin Hibernates, Strengthens, and Becomes More Environmentally Friendly

What has happened with Bitcoin? It has become stronger, more environmentally friendly, and less expansive. In our view, the resurgence of Bitcoin is attributed to the continuation of the bull market and the inevitable path to $100,000. The market was a bit overheated in April, and a key factor in the cryptocurrency correction — excessive energy usage — represented the strength of the world's largest decentralized network. China's restrictions, on the contrary, amplified Bitcoin's benefits and directed energy towards renewable sources.

In 2021, Bitcoin's fundamentals are solid. The end of 2020 indicated a historical trend for Bitcoin to experience a significant surge in 2021, which has indeed been the case. Bitcoin rose by about 35% by May 24th this year, hitting around $65,000, which was somewhat overextended, but amidst a backdrop of a roughly 50% decline from its peak, it found robust support below $30,000.

The following chart illustrates a key part of Bitcoin's 2021 fundamentals: In 2020, the 260-day volatility dropped to historically low levels compared to most major asset classes, especially the S&P 500 Index. Coupled with last year's supply reduction, migration to institutional portfolios, Ethereum futures, and the introduction of ETFs in Canada and Europe, we believe that Bitcoin has a greater potential to move towards $100,000 than to stay below $20,000.

A $100,000 Bitcoin in 2021 is within the norm. The chart below outlines the potential path of cryptocurrency towards the $100,000 resistance. Similar to the significant rebounds in 2013 (55x) and 2017 (15x), 2021 features a supply reduction. The 2020 halving occurred against the backdrop of unprecedented global fiscal and monetary stimulus measures and institutional tendencies towards Bitcoin allocation. Over the past decade, the likelihood of cryptocurrency becoming a digital reserve asset and maintaining its projected trajectory has been increasing.

Another supporting factor comes from people starting to recognize a new asset class. Gold may be losing its relevance, so diversified investment may just be a prudent move.

What will drive Bitcoin to $100,000? — Following Ethereum. If Bitcoin catches up with Ethereum's performance in 2021, the top-ranked cryptocurrency will move towards $100,000. The chart shows that as of May 24, the Bloomberg Galaxy Crypto Index (BGCI) surged around 110%, with Ethereum rising by 230%. In comparison, Bitcoin's approximately 30% increase seems relatively stable. Acceleration, stagnation, or a reversal are three possible scenarios, with about two-thirds of the likelihood tilting towards: BGCI going up.

Ethereum may represent the next level of innovation, surpassing the tech-focused Nasdaq index. As a cornerstone of the cryptocurrency market and financial technology, the second-ranked cryptocurrency is becoming increasingly prominent, with Ethereum's supply dwindling as fintech rapidly digitizes. Coupled with a shift towards less energy-intensive proof of stake, Ethereum's foundation is gradually solidifying.

Technical Analysis: Discounted Ethereum Bull Market

Ethereum is the preferred platform for cryptocurrency and decentralized finance, and our analysis shows that Ethereum is in a discounted state during a sustained bull market. Resembling Bitcoin in 2017, with a slight rise compared to the overall market, Ethereum has eliminated excessive speculation and is expected to consolidate in the $2,000-4,000 price range for a while.

A price range of $2,000-$4,000 may be the sweet spot for Ethereum. Compared to Bitcoin as a global digital reserve asset, Ethereum has a price advantage, with Bitcoin poised to reach six figures in 2021. Ethereum peaked just above $4,000 in mid-May, but corrected around 60% to around $2,800 on May 26, now appearing to be a discounted bull market. The chart depicts ETH returning to its bullish trajectory, following Bitcoin's 2017 price action. Similar to Ethereum earlier this year, Bitcoin started 2017 around $1,000, peaking just below $20,000. Ethereum may stay within the range of around $2,000 to $4,000 through October and follow a similar upward path as Bitcoin did in 2017.

Discount Bull Market: Ethereum drops to $2,000. Relative to the broader crypto market, ETH's price has approached levels indicating a period of distress. The chart illustrates the ratio of ETH to the MVIS CryptoCompare Digital Assets 100 Index, slightly below the peak of 2017. In June of that year, Ethereum reached $350, corrected around 60%, then surged back to its peak in November. We see similarities as ETH has retraced 60% to just below $2,000 and appears discounted in a bull market.

Ethereum is a key performance leader in the market cap, with an overall upward trend, around $2,000 being a strong support level, and $4,000 being a reasonable resistance level to further bullish activity.