Bloomberg Crypto Outlook – September 2019 Edition

Bitcoin Becoming Boring ‒ Bitcoin Getting Boring? Better Get Used to It, Just Like Gold

‒ Primary Bitcoin Companions Have Their Swords Out for the Bulls

‒ With Good Support and Resistance Overhang, Bitcoin May Turn Dull

‒ The Bitcoin and Cryptocurrency Future: Digital Gold, Stability

CONTENTS

2 Overview

2 Unfavorable Bitcoin Companions

3 Meh Technical Indicators

4 Future - Bitcoin & Stability

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Bloomberg Crypto Outlook – September 2019 Edition

Data and outlook as of September 4

Mike McGlone – BI Senior Commodity Strategist

BI COMD (the commodity dashboard)

Bitcoin Getting Boring? Better Get Used to It, Just Like Gold Performance: Bloomberg Galaxy Cypto Index (BGCI) August -16.1%, 2019 +52.0% thru September 5 Bitcoin August: -4.0%, 2019 +187.2% thru September 5

(Bloomberg Intelligence) -- Bitcoin is maturing into a digital store-of-value akin to gold, which tells us its parabolic rally days are over. Declining volatility in the seminal cryptocurrency should be a matter of time, and with the initial transition from last year's swoon past, the rest of this year is prime for restrained trading. Layers of price support, increasing institutional interest and macroeconomic conditions similar to those aiding gold should keep bitcoin's price buoyant. Too much rally too fast and Bitcoin will regress toward a highly speculative digital asset, similar to the 2,600-plus cryptos.

Our crypto analysis is increasingly focused on what matters: Bitcoin. An extended hangover is expected for most of others. The markets beta to Bitcoin should continue to increase on the way down and decrease when bitcoin is rising.

Unfavorable Bitcoin Companions

Primary Bitcoin Companions Have Their Swords Out for the Bulls. Some key Bitcoin price indicators don't support further price appreciation in the near term, which is a greater negative for the broader market. Sharp pullbacks in transactions and active-address counts portend a prolonged consolidation period for the first-born crypto.

More Back-and-Fill for Bitcoin Transactions. The sharp decline in transactions bodes ill for further appreciation in the Bitcoin price. Our graphic depicts Bitcoin appearing elevated at the beginning of September vs. the 10-day average of adjusted dollar-based transactions from Coinmetrics. This gauge, one of our top price-outlook indicators, has backed up to levels more consistent with the Bitcoin price near $8,000.

Transactions More Consistent With $8,000 Bitcoin

Falling Addresses Signal Bitcoin-Bull Caution. A sustained price recovery is unlikely, at least in the near term, if the sharpest downturn in Bitcoin addresses used since the 2018 bear market is a guide. The 30-day average of addresses from Coinmetrics is higher in 2019, but the recent backup suggests prices will remain restrained, in our view. Unlike the more price-correlated transactions measure, addresses are just a general guide. The broader market, as measured by the Bloomberg Galaxy Crypto Index in our graphic, appears at greater risk to declining Bitcoin addresses.

Recovery Thrill is Gone - Plunging Addresses

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Bloomberg Crypto Outlook – September 2019 Edition

Meh Technical Indicators

With Good Support and Resistance Overhang, Bitcoin May Turn Dull. The technical outlook for Bitcoin should favor a tight trading band, not bulls or bears, in our view. Volatility is set to keep declining as prices find layers of support on dips and similar hangover resistance on rallies from the previous parabolic bull market. Volatility and prices should continue to converge with gold. Bitcoin Likely to Pass Support Test. Bitcoin is likely to pass its first good test of price support since recovering earlier this year. Our graphic depicts the crypto approaching its 20-week average, which is near the May peak and about a one-third correction from the 2019 high. The backup should be sufficient to cleanse excessive speculative longs. Layers of support starting near the mean of about $9,300, and the $8,500 futures price gap, are building. But upside should be limited on moves toward the year's high of about $14,000 due to layers of hangover resistance from 2017's parabolic rally. Bitcoin Trend Is Higher With Open Interest

The ease with which Bitcoin rallied through its most widely traded price range since the inception of futures -- about $6,500 -- indicated a new bull market. Sustaining below that mark would portend failure. Increasing open interest indicates maturation.

Don't Look to Bitcoin to Get Your Pulse Going. With Bitcoin's initial transition from bear to bull market over, the rest of 2019 should be marked by a continuation of declining volatility. Our graphic depicts the downtrend in 180-day volatility, which is set to resume its trajectory toward the all-time low of 41% in 2015. If prices advance too rapidly, volatility is more likely to increase and slow the cryptocurrency's migration to a digital version of gold.

Set for Accelerating Decline in Volatility

Natural maturation, increasing vehicles for exposure and more participants are additional volatility suppressors. The 180-day measure is used as a benchmark because its low in October 2015 marked the birth of the bull market than ran through 2017. Gold Volatility Higher, Bitcoin Lower. Bitcoin and gold-price volatility will continue to converge in support of their companionship, in our view. The metal's 260-day volatility is recovering from a two-decade low, and the same measure for Bitcoin should keep sinking with maturation. About 7x vs. gold, Bitcoin volatility peaked close to 10x last year. We expect the difference to head toward 2x. Bitcoin's price, at about 7x that for an ounce of gold, also looks high. Bitcoin Volatility About 7x Gold, Set to Decline

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Bloomberg Crypto Outlook – September 2019 Edition

Gold is breaking out higher following five years of consolidation vs. Bitcoin, which is set for an extended period of back-and-fill after some 10 years of appreciation.

Future - Bitcoin & Stability The Bitcoin and Cryptocurrency Future: Digital Gold, Stability. Bitcoin is winning the race to become a global, digital store-of-value. In an increasingly digitized world, it's logical to expect an independent, digital quasi-currency to gain value amid rapidly declining interest rates and values of traditional currencies. Most alt-coins are likely to be increasingly subject to Bitcoin. Bitcoin vs. All Other Alt Coins. Bitcoin's evolution into a digital version of gold, underperforming alt-coin prices and stability are trends we expect to endure. Primary takeaways from our graphic are Bitcoin outperforming the Bloomberg Galaxy Crypto Index, excessive supply of crypto assets and the increasing market cap of Tether, the predominant stable coin. A bull market in launching new stable coins indicates a key flaw with most so-called cryptocurrencies: They are highly speculative and volatile digital assets. Supply is high and prices should continue to underperform first-born Bitcoin. Bitcoin Dominance Should Continue to Increase

Love it or hate it, Tether is successful when measured on a market-cap basis. Based on Coinmarketcap.com's rankings, Tether is the No. 6 cryptocurrency at the onset of September, vs. about 16th at the end of 2017. Bitcoin on Its Way to Becoming Digital Gold. It's easy to find a case for a global digital store-of-value as currencies plunge. The ability to diversify currency exposure, particularly from capital constraints, favors a gold-like digital quasi-currency, and Bitcoin is increasingly the choice. Restrictions in China and recent capital controls in Argentina add to the Bitcoin use-case. Our graphic depicts the sinking values of the yuan and peso vs. appreciating dollar-denominated gold and Bitcoin.

Bitcoin Supported by Declining Yuan and Peso

Record highs in peso-denominated Bitcoin extol its virtues vs. traditional and more difficult to transport gold.

Primary Test for Bitcoin: A Peak Dollar. Bitcoin is gaining traction in the traditional space for gold as an independent quasi-currency store-of-value. Our graphic depicts the Argentine peso-denominated Bitcoin price at an all-time high vs. the more subdued dollar-denominated version. If history is a guide, the rapid appreciation of the trade-weighted broad dollar will at some point reverse, and we expect Bitcoin and gold to be the primary beneficiaries. Bitcoin Record Highs in Argentine Peso

Dollar-denominated gold is showing divergent strength, indicating a potential strong greenback end-game. Since the end of 2017, gold is up about 17% vs. 11% for the dollar to Sept. 4. Bitcoin is down only 23%, despite the big 2017-18 boom and bust.

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Bloomberg Crypto Outlook – September 2019 Edition

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Bloomberg Crypto Outlook – September 2019 Edition

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