Midyear, July 2020 Edition

Bloomberg Galaxy
Midyear, July 2020Crypto
EditionIndex (BGCI)
Bloomberg Crypto Outlook

Bloomberg Crypto Outlook

A Resting Bitcoin Bull

 Bitcoin Blahs? Benchmark Crypto Looked Similar Before Past Gains

 Like Gold, Bitcoin Outdistancing Broader Market

 Bitcoin Is Winning in the Category That Matters Most: Demand

 Narrowing Risk-Adjusted Disparity Shining Favor on Bitcoin

 Bitcoin a Caged Bull Set for Breakout, Eying $13,000 Resistance

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CONTENTS
4 Overview
4 Bitcoin Is Gold vs. Crypto-Assets
5 Increasing Bitcoin Demand, Adoption
6 Bitcoin Risk/Volatility in Decline
7 Technical Outlook - A Resting Bitcoin Bull

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Learn more about Bloomberg Indices

Data and outlook as of July 1, 2020
Mike McGlone – BI Senior Commodity Strategist
BI COMD (the commodity dashboard)

Note ‐ Click on graphics to get to the Bloomberg terminal

Bitcoin Blahs? Benchmark Crypto Looked

Similar Before Past Gains
Real-Time Bitcoin-Demand Indicators Positive. Akin to
gold ETFs' indication of increasing demand, the Grayscale
Performance: Bloomberg Galaxy Cypto Index (BGCI) Bitcoin Trust (GBTC) shows the Bitcoin price is more likely to
June -7.9%, 2020 to July 1 +31%, One-year -31% appreciate. Our graphic depicts the price of the benchmark
Bitcoin June -3.8%, 2020 +29%, One-year -12% crypto consolidating around its 52-week mean, and GBTC
total assets marching to new highs. At just over 2% of Bitcoin
(Bloomberg Intelligence) -- Volatility should continue market capitalization, the trust isn't a large portion, but its
declining as Bitcoin extends its transition to the crypto daily transparency and status of trading on regulated
equivalent of gold from a highly speculative asset, yet we exchanges is a good real-time indicator of investor demand.
expect recent compression to be resolved via higher prices. Most gauges point to increasing Bitcoin adoption, which due
Primary demand and adoption indicators remain favorable, to diminishing supply would need to reverse for the price to
notably on-chain addresses, investor flows and futures open decline.
interest. Supply isn't an issue, as it's more constrained than
gold's, which tilts our view toward price appreciation, unless The underperformance of the broader market, as measured
the basics of demand vs. supply economics have changed. by the Bloomberg Galaxy Crypto Index, is a trend we expect
to endure, particularly in an environment favoring a digital
Unparalleled global central-bank easing and rising gold version of gold.
values are enduring trends favoring a higher Bitcoin price.
The benchmark crypto and gold both have positive Like Gold, Bitcoin Outdistancing Broader Market.
macroeconomic underpinnings. Unparalleled global central-bank easing and the rising price
of gold are trends we expect will endure, supporting Bitcoin
appreciation vs. most crypto peers. At about 65% of the
market cap of all cryptos at the start of July, Bitcoin is to its
Bitcoin Is Gold vs. Crypto-Assets sector as gold is to commodities, with favorable
macroeconomic underpinnings. Our graphic depicts the
Bitcoin-Demand Indicators Akin to Gold ETFs and ratio of the benchmark vs. the Bloomberg Galaxy Crypto
Advancing Prices. Bitcoin is becoming more like gold in an Index tracking closely with advancing gold. The oversupplied
increasingly favorable macroeconomic environment for the crypto market has little chance of appreciation unless Bitcoin
quasi-currencies, and we believe it will continue does, as we see it.
outperforming most peers. Similar to the yellow metal, our
indicators remain price-positive for the benchmark crypto to Bitcoin Gaining Gold Status vs. Crypto Market
continue outshining the broader market.

Bitcoin On-Exchange Demand Similar to Gold ETFs

There is only one gold, and Bitcoin is the equivalent in the

crypto-asset market. Increasing adoption of the first-born
crypto is showing few signs of let-up, supporting our price
view.

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Bitcoin Upper Hand Increasing vs. Crypto Assets. Bitcoin More Addresses - Increasing Bitcoin Adoption
will continue to outperform most of the highly speculative
crypto assets, in our view. Down about 12% on a one-year
basis, the benchmark outshines peers' performance. Too
much supply and ease of entry should continue to weigh on
most alt-coins, still in an extended hangover from the
parabolic gains to the 2017-18 peak. It's the increasing
differentiation, maturation and more widespread adoption
that favors Bitcoin, which is becoming more of a gold-like
store of value.
It's Bitcoin vs. Extended Crypto Hangover

The 2019 Bitcoin end-of-day high was $12,734, based on

Bloomberg pricing. Unless advancing addresses abruptly
reverse, history suggests Bitcoin may gravitate toward that
level.
Bitcoin Maturing With Rising Futures Open Interest.
Rapidly rising CME-traded futures open interest confirms
Bitcoin's maturation pace and higher-price tilt, in our view.
Not only do futures represent joining the mainstream,
trading on a U.S.-regulated exchange is key, with the SEC
reluctant to approve Bitcoin ETFs. Our graphic depicts open
interest recently reaching new records and in a clear upward
trajectory.
As of July 1, noon NY time
Upward Trajectory - Bitcoin Futures Open Interest
The Digital Assets 100 Small Cap Index at the bottom of the
performance scorecard supports our view that the crypto
market is mostly about Bitcoin joining the mainstream of
investable assets vs. the gaggle of copycats.

Increasing Bitcoin Demand, Adoption

Bitcoin Is Winning in the Category That Matters Most:
Demand. The simple rule that an asset with limited supply
and strengthening demand will increase in price shapes our
Bitcoin outlook. Increasing addresses used, on-exchange
investment product inflows and futures open interest create
firmer underpinnings for the benchmark crypto.
Addresses Point Bitcoin Toward $12,000. The number of Reaching about 50,000 Bitcoins, futures open interest isn't a
active Bitcoin addresses used, a key signal of the 2018 price large portion of total supply. Yet futures are significant as a
decline and 2019 recovery, suggests a value closer to primary gateway for the benchmark crypto to become a
$12,000, based on historical patterns. Reflecting greater mainstream asset class.
adoption, the 30-day average of unique addresses from Grayscale Trust Increasing Demand, Declining Premium.
Coinmetrics has breached last year's peak. In 2019, when this Strong inflows and the declining premium in the Grayscale
metric exceeded the previous high, it preceded Bitcoin's Bitcoin Trust (GBTC) indicate increasing demand and
recovery from the depths of a bear market. Our graphic acceptance of the benchmark crypto into the mainstream of
shows addresses consolidating near the highest level since investable assets. Total fund assets of $3.5 billion are up
February 2018, and the relative discount in Bitcoin. about a third from a year ago, despite a 12% decline in the
Bitcoin price at the start of July. On a 30-day-average basis,
the Trust's 20% premium to its underlying net asset value
compares with the historical mean of 39%. Bitcoin's March

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swoon coincided with the premium approaching zero and its

Bitcoin-to-Gold Ratio Set to Resume Advancing. Bitcoin's
subsequent recovery, similar to when the crypto bottomed in
declining volatility vs. gold's is an indication of the crypto's
2018.
decreasing risk and its propensity to increase in price, if
history is a guide. Our graphic depicts Bitcoin 260-day
GBTC Showing Rising Bitcoin Investor Demand
volatility at the lowest vs. the same gold-risk measure since
the crypto asset's parabolic 2017 rally. Fast forward to the
third year since that advance, and the annual Bitcoin-risk
metric has dropped to below 70% from just above 100%.
Volatility on the crypto was very high and is mean reverting,
which has been a bullish price indicator.

Volatility Reversion - Bitcoin Toward Gold

The GBTC premium has declined from the 2017 peak near
85%, when the Trust accounted for 1% of supply vs. over 2%
now. We expect the premium to continue to shrink, notably
as more ETFs come on board.

Bitcoin Risk/Volatility in Decline

Narrowing Risk-Adjusted Disparity Shining Favor on Gold volatility is doing the opposite, with its annual risk
Bitcoin. Annual Bitcoin volatility is at record lows vs. equities, measure reverting higher from a two-decade low in 2019. It
gold and commodities' crude-oil kin, indicating the crypto is was extremely low gold volatility at start of the millennium
maturing on a risk-adjusted basis. Volatility on the that preceded the bull market to the 2011 peak.
benchmark crypto should continue to decline, but typically,
Volatility Shows Bitcoin Maturing vs. Commodities. The
relatively low-risk measures portend higher prices. lowest volatility ever vs. crude oil confirms our view of
Bitcoin Gaining on Risk Basis vs. Stocks. Fluctuating Bitcoin's progression into the mainstream and increasing
around a 1-to-1 basis with Nasdaq for a third year, the Bitcoin appeal as a digital equivalent of gold. Representing a
price is gaining the upper hand, based on historical volatility nascent technology designed to increase in fiat-currency
readings. The crypto's 260-day volatility measure is the terms vs. the primary commodity that's deflationary and
lowest ever vs. the stock gauge. Our graphic depicts Bitcoin redundant, the Bitcoin price is set to stay the upward course
volatility is about 2x Nasdaq's. It was closer to 7x when the vs. crude oil. Our graphic depicts the ratio of the crypto vs.
crypto price and index first crossed paths in 2017. Bitcoin West Texas Intermediate at about the same level as the 2017
volatility typically increases when its price rises, and the peak.
relationship is normally inverse for equities.
Bitcoin Likely to Continue Advancing vs. Crude Oil
Bitcoin Volatility Is Lowest Ever vs. Nasdaq

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A key difference is that Bitcoin's 260-day volatility is about Bollinger Band Portends Breakout Soon. On the cusp of
0.6x that of WTI. It approached 4x at the peak about three the narrowest annual Bollinger Bands in the life of Bitcoin,
years ago. Record crude-oil volatility elevates its potential to history indicates a price breakout is imminent and higher is
mean-revert lower, but the fact that the newcomer is less the path of least resistance. Our graphic shows the upward
risky than the old guard shines favorably on Bitcoin. sloping 260-day moving average on the crypto and bands
that roughly marked the 2019 high and 2020 low for
guidance. By this measure, when Bitcoin exits its cage, about
Technical Outlook - A Resting Bitcoin Bull $13,000 is a good initial resistance target. Sustaining below
the bottom band at about $6,500 would jeopardize the
Bitcoin a Caged Bull Set for Breakout, Eying $13,000 uptrend.
Resistance. The more disdain from Bitcoin bulls should be
for the better, potentially keeping the price tilted upward for Narrowest Ever Bollinger Bands and Digital Gold
the consolidating crypto. Declining Bitcoin volatility reflects
maturation toward a digital version of gold, and history
teaches us that risk measures typically follow prices higher.
Bitcoin Gaining Upper Hand vs. Most Risk Assets.
Consolidating within a narrowing range since the beginning
of May, Bitcoin is more likely to exit its cage to the upside,
based on precedent. Declining 30-day volatility,
approaching recent lows, is typically unsustainable for the
crypto and more often recovers with prices. What's different
this time is the lower bound of Bitcoin volatility could
continue to decline with normal maturation. Our graphic
depicts $10,000 as the price pivot that we expect is a matter
of time to breach. The 2020 low close of about $5,000 on
the back of the March asset swoon is a good definition of risk
for sustaining the longer-term bull. In the process of maturing from a highly speculative crypto
asset to a digital version of gold, we expect Bitcoin volatility
Low Volatility, Wedge - Bitcoin Breakout Soon measures to continue to decline. Its 260-day volatility, at
about 4.4x that of the same gold measure, is the lowest since
April 2017. The average is around 6.4x and the peak was
12.2x in 2011.

{CRYP} Page on the Bloomberg Terminal (4am NY, July 2)

About $8,000-$10,000 is the primary consolidation range.

We see Bitcoin, at about $9,200 on June 25, as more likely to
head toward the 2019 high close of just below $13,000 than
sustaining under $8,000.

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Market Access data on BI COMD

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