Bloomberg Long Report: Bull Market Awakens in June, Bitcoin Gears Up to Rise to $100,000, Dollar Dominates in the Digital World

This article was published on Bitpush, author: Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, translated by: Mary Liu.

Content Overview

• Bitcoin: $20,000 or $100,000?

• The U.S. Wins the Digital Cold War

• Crypto Top 3: Bitcoin, Ethereum, Tether

• Bitcoin is Gaining Strength, Continuing to Strengthen, and Becoming More Eco-Friendly

• Technical Analysis: Discounted Ethereum Bull Market

1. Bitcoin's Next Step: $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's resting period. The second-ranked Ethereum is rapidly moving towards the top market cap position and has been a major driver of the Bloomberg Galaxy Crypto Index in 2021. Bitcoin is more likely to break resistance and rise to $100,000 rather than fall below $20,000.

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

As we can see, the Bloomberg Galaxy Crypto Index (BGCI) indicates that the bull market starting in June will begin with discounted Bitcoin.

Bitcoin has retraced about 50% from its 2021 highs and seems 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, and compared to the peak of over 250% in early May, it has also seen a nearly 50% retracement. Much of the excessive speculation has been eliminated, and Bitcoin's fundamentals remain intact.

Ethereum's Market Cap Expected to Surpass Bitcoin.

It is important to emphasize the benefits of diversification, especially in emerging asset classes like cryptocurrency. The longer-term trend seems to be Ethereum gaining a larger market share relative to Bitcoin. Both have bullish fundamentals, but Ethereum's fundamentals and use cases are a strong complement to Bitcoin's more macro value storage attributes. The following chart depicts trading volume as a leading indicator driving Ethereum's growth, with Ethereum reaching 50% of Bitcoin's market cap. Since the beginning of 2021, ETH's 10-day average trading volume has doubled, reaching 80% of Bitcoin's. (Coinmarketcap)

The Macroeconomic Fundamentals of Bitcoin and Ethereum are Improving.

Bitcoin and Ethereum may have a unique timing advantage. If economic rules apply, the reduction in supply, along with historically low interest rates and a massive influx of funds into the system, forms a solid foundation for the appreciation of crypto asset prices. Adoption is still in its early stages, but it is key; Bitcoin seems to have won the race, as evidenced by Tesla allocating part of its equity wealth to digital assets.

The following chart depicts Bitcoin's annual mining supply declining to below 1% by 2025 vs. the rapid increase in U.S. debt.

Typically, such a backdrop is ideal for pushing up the dollar price of gold, but the old world's reserve asset is being replaced by digital newcomers. We see little force to stop this trend and expect it to accelerate.

10,000 cryptocurrencies solidify Ethereum's foundation. The increasing number of crypto assets listed on Coinmarketcap is a major foundation brought by Ethereum's tailwind.

The following chart depicts the number of tradable cryptocurrencies reaching the milestone of 10,000, many of which are built on the Ethereum blockchain. Compared to about half a year ago, the large number of cryptocurrencies may indicate oversupply and excessive bubbles, but Ethereum remains at the top in the crypto gold rush.

According to the chart, ETH currently appears to be at a low, but we view the number of tradable cryptocurrencies as a general guide for the market. Ethereum's trading range in May from slightly above $4,000 to slightly below $2,000 may set key support and resistance for a while, with upward movement still being the major trend.

2. The U.S. Wins the Digital Cold War

The situation of the U.S.-China digital cold war is as competitive as the Yankees winning. In a new cold war, China suppresses Bitcoin's new technology and the open-source code of currency digitization, while we expect the U.S. to embrace it. With proper regulation, the almost inevitable outcome is the strengthening of the dollar's dominance, as evidenced by Tether, the most widely traded crypto asset in the world. We believe that the emergence of crypto ETFs is just a matter of time.

Currency digitization is here: the dollar reigns supreme. It is the organic adoption of digital assets, along with the dollar as the primary currency, that makes our bias more aligned, especially as crypto asset prices appreciate. Despite the rapid rise in the U.S. debt-to-GDP ratio and quantitative easing policies, the trade-weighted broad dollar has risen about 30% over the past decade, with the renminbi being the highest-weighted currency in that index.

The following chart juxtaposes the roughly stable renminbi to dollar exchange rate during the same period with the parabolic rise in Tether's market cap.

Although the U.S. share of global GDP continues to decline, the fact that Tether has become the most widely traded crypto asset is indicative of the direction of things—the dollar dominates in the digital world.

U.S. Bitcoin ETF is just a matter of time. As we can see, the U.S. is very likely to adopt the technology and appropriately regulate cryptocurrencies, thereby opening the door for Bitcoin exchange-traded funds in 2021. Crypto assets highlight the drawbacks of authoritarian, centrally planned economies like China, where there is a lack of free capital flow and public discourse. Considering the Teucrium Wheat Fund (WEAT), it makes little sense for the SEC to continue opposing futures-based Bitcoin exchange-traded products.

The chart shows that the 30-day average trading volume of crypto futures is $2.6 billion, while the 200-day average trading volume of wheat futures has stabilized below $4 billion for about a decade. There is little to stop the daily Bitcoin futures trading volume's dollar value from exceeding that of wheat.

High Beta Bitcoin Relative to Stocks?

When Bitcoin plummeted on May 19, almost all global markets demonstrated Bitcoin's significance. As we can see, the advantages of cryptocurrencies compared to the stock market are becoming more pronounced. A rising stock market should maintain the high Beta of Bitcoin, but if the stock market falls, more stimulus will boost the fundamentals of digital reserve assets.

Most assets increasingly rely on rising stock prices for support, but Bitcoin may become an exception. The chart depicts a relatively high 12-month beta coefficient of Bitcoin to stocks at about 2 times, down from a peak of about 16 times in 2013.

3. Crypto Top 3: Bitcoin, Ethereum, Tether

Only when the tide goes out do you discover who has been swimming naked, and Bitcoin, Ethereum, and Tether are all "dressed," shining brightly in the top three positions of the crypto market. Bitcoin is the digital reserve asset, Ethereum is the main ecosystem builder, and Tether (an Ethereum token) represents the rapid move towards digitization under the support of the dollar's dominance. Tether's rise to the third-largest crypto market cap is one of the most consistent trends in the digitalization space.

Bitcoin, Ethereum, Tether—steadfast survivors. Consistent strength and performance deserve respect, which is how we view the digitization of currency represented by Tether. Despite controversies and regulatory crackdowns, the continuously rising market cap of the world benchmark dollar token has been a persistent indicator of the expanding digital asset ecosystem. The following chart depicts the top three crypto assets on Coinmarketcap in early June: Bitcoin, Ethereum, and Tether.

Despite the decline of most crypto assets, Tether gained significant status in 2018, when its market cap and trading volume were still rising. The adoption of digital dollars is surging, with dollar tokens based on Ethereum entering the top 10.

Tether and the wave of digitization. As we can see, Tether and the digitization of currency (especially the dollar) reflect the rising trend of crypto assets. Tether's market cap rose about 190% in 2021, Ethereum's price rose 280%, and the Bloomberg Galaxy Crypto Index's nearly 130% increase was mainly due to Bitcoin's relatively poor performance, which rose about 30%.

Ethereum's Rising Dominance. In our view, Ethereum's gaining dominance and Bitcoin's decline represent a bifurcation among cryptocurrencies and is a trend with persistence. Ethereum is a key building block for financial digitization, while Bitcoin is more of a macro replacement for gold in portfolios. There are not many smart contracts or tokens that can be built on Bitcoin, but it is moving in that direction to become a digital reserve asset. The following chart depicts the percentage of Ethereum's market cap relative to the total market cap.

4. Bitcoin is Gaining Strength, Becoming More Eco-Friendly

What is happening with Bitcoin? It will become stronger, more eco-friendly, and expand less. In our view, the reason for Bitcoin's rebound is the continuation of the bull market and the inevitable path to $100,000. The market was a bit overheated in April, and one major factor in the correction of cryptocurrencies—excessive energy use—represents the strength of the world's largest decentralized network. China's restrictions have instead highlighted the benefits of Bitcoin and shifted energy towards renewable sources.

In 2021, Bitcoin's fundamentals are solid. At the end of 2020, Bitcoin's historical trend indicated that cryptocurrencies would rise significantly in 2021, and this has indeed been the case. Bitcoin rose about 35% by May 24 of this year, becoming a bit overheated around $65,000, but it received multi-layer support below $30,000 against the backdrop of a nearly 50% drop from its peak.

The following chart depicts a key part of Bitcoin's fundamentals in 2021: in 2020, the 260-day volatility fell to an all-time low compared to most major asset classes (especially the S&P 500). Coupled with last year's supply reduction, the migration to institutional portfolios, Ethereum futures, and the launch of ETFs in Canada and Europe, we believe that Bitcoin's potential to move towards $100,000 is greater than the possibility of maintaining below $20,000.

The $100,000 mark in 2021 is standard. The following chart depicts the potential path for cryptocurrencies towards the resistance of about $100,000. Similar to the significant rebounds in 2013 (55 times) and 2017 (15 times), the supply reduction in 2021. The halving in 2020 occurred against the backdrop of unprecedented global fiscal and monetary stimulus and institutional preferences for Bitcoin allocation. Over much of the past decade, the likelihood of cryptocurrencies becoming digital reserve assets and maintaining their planned trajectory has increased.

Another supporting point comes from the recognition of a new asset class. Gold may be losing its significance, so diversification may simply be a prudent approach.

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) rose about 110%, with Ethereum rising 230%. In contrast, Bitcoin's rise of about 30% appears relatively stable. Acceleration, maintaining, or reversal are three possible options, and we see about two-thirds of the probability leaning towards: BGCI rising.

Ethereum may represent the next level of innovation, surpassing the technology-driven Nasdaq index. As the cornerstone of the cryptocurrency market and fintech, the second-largest cryptocurrency is becoming increasingly prominent, and as Ethereum's supply decreases, fintech is rapidly digitizing. Coupled with the shift to less energy-consuming proof of stake, Ethereum's foundation is gradually solidifying.

5. Technical Analysis: Discounted Ethereum Bull Market

Ethereum is the preferred platform for cryptocurrencies and decentralized finance, and our analysis shows that Ethereum is undervalued in a lasting bull market. It looks like Bitcoin in 2017, with a slight rise compared to the broader market; Ethereum has eliminated excessive speculation and should consolidate in the price range of $2,000 to $4,000 for a while.

$2,000 to $4,000 may be the best point for Ethereum. Compared to Bitcoin as a global digital reserve asset, Ethereum has a price advantage, with Bitcoin expected to reach six figures in 2021. Ethereum was slightly above $4,000 in mid-May but corrected about 60% to around $2,800 on May 26, now appearing as a discounted bull market. The chart depicts ETH returning to an optimistic trajectory, following Bitcoin's price trend in 2017. Similar to Ethereum at the beginning of this year, Bitcoin started around $1,000 in 2017 and peaked just below $20,000. Ethereum may remain in the range of about $2,000 to $4,000 until October and follow a similar upward path as Bitcoin in 2017.

The excessive speculation around Ethereum at around $4,000 seems to have been fundamentally alleviated when it broke below $2,000.

Discounted bull market: Ethereum dropped to $2,000. Relative to the broader crypto market, ETH's price has approached levels indicating it may be stuck for a while. The chart depicts the ratio of ETH to the MVIS CryptoCompare Digital Asset 100 Index, slightly below the peak in 2017. In June of that year, Ethereum reached $350, corrected about 60%, and then rebounded to peak in November; we see similarities, as ETH has dropped 60% to just below $2,000 and appears discounted in the bull market.

Ethereum is a leading performer in the broader market, with an overall upward trend, and the $2,000 level is a good support level, while the reasonable pressure level limiting its further bullish movement is $4,000.