Bloomberg Crypto Outlook – August 2019 Edition

Bloomberg Terminal
Indices
Bitcoin Riding a Rising Tide
‒ Bond Yields, Stock Volatility Give Bitcoin `Digital Gold' Luster
‒ Bitcoin Price Indicators Show Back-and-Fill Foundation Building
‒ Bull Market in Bitcoin Buy-and-Hold Indicators: GBTC and Futures
‒ The Futures Tail Is Increasingly Wagging the Bitcoin-Bull Dog
‒ Libra's Death Exaggerated? Facebook Has to Mollify Policy Makers

CONTENTS
2 Overview
2 Improving Macro Foundation
3 Bitcoin Companions Back-&-Fill
4 Futures Tail Wagging the Dog
5 Facebook Crypto

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Bloomberg Crypto Outlook – August 2019 Edition

Data and outlook as of August 5 Learn more about Bloomberg Indices

Mike McGlone – BI Senior Commodity Strategist

BI COMD (the commodity dashboard)
Note ‐ Click on graphics to get to the Bloomberg terminal

Similar to Gold, Tide Is Rising for Bitcoin vs. Risk Bitcoin and the Improving Macro Landscape
Assets
Performance: Bloomberg Galaxy Cypto Index (BGCI)
July -15.5%, 2019 +86.9% thru August 5
Bitcoin July: -4.3%, 2019 +221.4% thru August 5

(Bloomberg Intelligence) -- Bitcoin should remain a primary

beneficiary of growing demand for its store-of-value, quasi-
currency asset properties, similar to gold. Favorable
macroeconomic fundamentals -- plunging bond yields and
rising stock-market volatility -- appear to have endurance and
should further differentiate Bitcoin from other crypto assets,
much as gold is gaining luster vs. most commodities.
Bitcoin's big-picture price action has been a non-story, with
this year's range within those in 2017-18. A consolidating bull
market is our takeaway, with simple retracement of the 2018 Our graphic depicts potential early reversion in the strong-
decline its initial mission. dollar trend. Flat for the fourth year, the ratio of the
Our indicators point to further back-and-fill for the first-born Bloomberg Commodity Spot Index vs. MSCI World gauge
digital currency, allowing some reversion in lofty volatility should be a primary beneficiary of a dollar peak. In the past
and lower means. Futures are holding much stronger sway 20 years measured annually, the dollar has a positive 0.73
and provide insight for what is likely a bull market. correlation to the S&P 500 vs. World ratio, and as negative a
number vs. the Bloomberg Commodity Index (BCOM).
Improving Macro Foundation
Tariffs Just Another Log on Fire for Amigos Gold, Bitcoin,
Bonds. The path of least resistance for gold, Bitcoin and
Bond Yields, Stock Volatility Give Bitcoin `Digital Gold'
bond prices is emphasized by the ease with which they
Luster. A six-year high in old-guard gold sets a good
rallied on word of new China tariffs on Aug. 1. The latest
example for relieving last year's bear-market hangover in
round of U.S. tariffs on Chinese imports adds fuel to the
Bitcoin's progression as a digital equivalent. Improving
gold-rally fire, in our view, with Bitcoin and Treasuries
macroeconomic conditions for the quasi-currencies are
remaining close companions. Spot gold appears to be
coming on the back of a broader base of investors looking
retracing the 2013 decline, which began near $1,700 an
ahead to an increasingly digitized world.
ounce. Gold's foundation is solid on the back of
Trends Gaining Momentum Support Bitcoin. The more multidecade-low annual volatility just a few months ago.
significant question for the Bitcoin outlook is what it might
Gold, Bitcoin and Bonds Appear on Bullish Mission
take to reverse macroeconomic trends that favor greater
price appreciation. Our graphic depicts Bitcoin recovering
along with gold and increasing levels of negative-yielding
debt. This rising tide appears to have endurance, though
some volatility and retracement toward the upward-sloping
20-week average near $8,200 may occur.
Improving macro conditions come on the back of increasing
institutional interest in the first-born crypto, as evidenced by
rapidly increasing futures open interest and volume. The
Bloomberg Galaxy Crypto Index is advancing, but we expect
this gauge of the top 10 assets to continue to fall further
behind the performance of Bitcoin.

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Bloomberg Crypto Outlook – August 2019 Edition

Bitcoin also appears intent to retrace last year's decline. Our 2015-16
graphic depicts 2018 price lows in gold (August), bonds
(October) and Bitcoin (December).

Bitcoin Companions Back-&-Fill

Bitcoin Price Indicators Show Back-and-Fill

Foundation Building. Bitcoin's primary price
indicators support our view of an extended
consolidation period. Transactions and active-address
counts remain on clear upward trajectories, but have
pulled back sharply from initial spurts. A transition to
an enduring uptrend is more likely following the initial
flip from bear to bull market.

Transactions on Similar Footing as 2015-16

Recovery. Bitcoin has made the shift to price
appreciation, but further back-and-fill is likely, with
historical transactions as a guide. The 10-day average
of dollar transactions from Coinmetrics, one of the
most robust Bitcoin companions, has clearly turned
higher, similar to the 2015-16 bottom. What's different
now is the price and transaction recoveries are a bit
ahead of themselves vs. four years ago.
A repeat is possible, with signs pointing to further
consolidation around the halfway mark of the 2017-18
decline near $11,300. Our graphic depicts the very
similar 20-day averages of our transactions metric and
the Bitcoin price rather extended above the 200-day
mean, notably vs. the more-orderly 2015-16 recovery.
Futures' growing prominence and wider adoption
support similar price appreciation, as we see it.
Bitcoin Back-and-Fill Warranted With Transactions
Address Backup Indicates Bitcoin-Bull Caution. The
sharpest downturn in addresses used since the 2018
bear market merits caution for an advancing Bitcoin
price. The plunge in active addresses was a precursor
for last year's weaker Bitcoin value. A similar-velocity
decline in the 30-day average of addresses from
Coinmetrics as in 1Q18 coincides with Bitcoin's
pullback from the June high. Unlike the more-price-
correlated transactions measure, addresses are just a
general guide. The bottom line is that they're higher in
2019.
Bitcoin Back-and-Fill More Likely – Addresses

Our graphic supports Bitcoin's potential to revisit

support near $8,000, toward the upward-sloping 20-
week average and with further back-and-fill the more
likely outcome. This year's spurt in address totals
preceded the transition to a bull from a bear market.
More-enduring adjustment to the uptrend provides a
firmer foundation.

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Bloomberg Crypto Outlook – August 2019 Edition

Bull Market in Bitcoin Buy-and-Hold Indicators: price (XBTUSD). Near the bottom of the bear market in
GBTC and Futures. The steadily increasing premium February, futures reached a discount of about 1%.
in the Grayscale Bitcoin Trust (GBTC) indicates
increasing demand for the first-born crypto. GBTC's Bitcoin Futures Premium Supporting Rally
premium over its underlying net asset value, about
34% on a 30-day average basis, compares with the
historical mean of 43%. What's different this time is the
more moderate pace of the increasing premium since
almost touching zero at the end of 2018.

GBTC, Futures Indicate Increasing Bitcoin Demand

The 30-day averages of the Bitcoin price and the

Rapidly increasing futures open interest and the
amount of Bitcoin represented by assets in GBTC
indicate the trend in more buy-and-hold investors. The
30-day average (almost 230,000) of Bitcoin
equivalents in GBTC is the highest ever, up about
40,000 from a year ago. CME-traded futures open
interest is similar. The 30-day average has about
doubled, too, near 27,000 Bitcoin equivalents.
Futures Tail Wagging the Dog
The Futures Tail Is Increasingly Wagging the
Bitcoin-Bull Dog. Bitcoin's footing is getting stronger
in terms of price and mainstream adoption, with
futures-market activity dictating the first-born crypto's
direction. An increasing premium in the futures'
trading prices is indicative of growing buy-and-hold
interest. Volume and open-interest trends remain
favorable.
futures premium/discount demonstrate similar-
trending patterns. Our graphic auto-scales these
measures. End-of-day prices can vary, but we find the
30-day average sufficiently filters out the noise. CME
Bitcoin futures settle the CF Bitcoin Reference Rate,
which aggregates Bitcoin trading activity across major
Bitcoin spot exchanges.
Favorable Volume and Open Interest Trends.
Increasing futures volume and open interest support
the Bitcoin price and its evolution as a digital version of
gold. Clear upward trajectories in the amount of
futures contracts and open interest based on the
digital currency traded on the CME recently reached
new highs. Due to the nascent stage of Bitcoin futures
(December 2017 launch), upward-sloping measures
appear to be agnostic to the price, but support its
maturation into the mainstream of more institutional
investors and traders.
Migrating Into a More Institutional Marketplace

Futures Indicate Bitcoin Price Is Too Low. An

increasing premium in the Bitcoin futures price is lifting
the market and indicates more institutional buy-and-
hold interest. The 30-day average of the CME-traded
Bitcoin futures vs. the Bloomberg-disseminated price
reflects the highest premium ever. Our graphic depicts
futures averaging about 2% above the Bloomberg

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Bloomberg Crypto Outlook – August 2019 Edition

Thirty-day average volume of about $470 million
indicates the improving ability to support a futures-
based exchange traded fund, as we see it. Open
interest and the number of contracts traded have
increased about 50% from a year ago.
have so far acknowledged, in our view. At the most basic
level, financial regulators likely lack authority to stop the
launch without additional legislation. We don't believe
House Democrats and Senate Republicans will be able to
agree on the scope of potential legislation during this
Congress, which runs through January 2021.

{BI COMD} Cryptos, Under Data Library

{CRYP} Page on the Bloomberg Terminal

Key Points:

Facebook Crypto
Ben Elliott | BIO, BI Government Analyst
David Ritter | BIO, BI Senior Industry Analyst
The America-first argument Libra offered to Senators on July
16 is likely, in our view, to resonate with Republicans enough
Libra's Death Exaggerated? Facebook Has to Mollify
to insulate the crypto project from its harshest critics. We
Policy Makers.
expect Facebook will do everything possible to assuage
(Bloomberg Intelligence) -- Even with harsh rhetoric from
regulators' and lawmakers' concerns before launching Libra -
Congress this week, we don't think Facebook's Libra
- likely pushing back the launch date beyond the initial one-
proposal is doomed. Senate Republicans' restrained
year time frame.
response may be a win for the social media giant. Libra can
easily comply with existing law, in our view, though the PR
Senate Banking All Bark No Bite for Libra. The Senate
fight may not be worth it. If successful, the reserve fund alone
Banking Committee was all bark and no bite during its July
could add billions to Facebook's revenue.
16 hearing on Facebook's proposed cryptocurrency, in our
view. U.S. financial regulators simply don't have the
Libra's Best Defense? Partisan Politics. Facebook has more
necessary authority to prohibit decentralized financial
leverage to launch a cryptocurrency than most observers
services or true digital currencies. That said, the SEC could

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Bloomberg Crypto Outlook – August 2019 Edition

deem some aspects of Libra a securities offering, subjecting
it to typical - and easily managed - financial regulations.
Facebook's perceived hubris in expanding into financial
services could still be the straw that breaks the camel's back
and leads to new legislation in 2021 or beyond.
Senate Banking Libra Hearing Replay
Libra Association May Limit Facebook's Control and
Liability. A Swiss nonprofit owned by Libra's initial investors
will own the infrastructure and control the reserve of
currencies and government securities that form the core
structure of Facebook's cryptocurrency. The association will
sell Libra Investment Tokens to raise initial reserve funds,
creating a corresponding supply of Libra. Future returns from
the fund, which at scale could be substantial, would be
distributed by the association and as dividends to Investment
Token holders.

Key Points:

While Treasury takes the potential abuse of Libra for money

laundering or terrorism financing very seriously, there is little
regulators can do to preempt the project until it violates the
law.
Libra Token Aims to Democratize Dollars, Euros, Etc.
Banking for the global unbanked seems to be Libra's core
value proposition, but its potential to disrupt sovereign Facebook's subsidiary Calbira controls the association
money supplies is being taken seriously by regulators through this year. Control of Libra will subsequently be
globally. Libra investors will earn the spread off token users' determined by so-called validator nodes' relative ownership
cheap funding by creating a user-friendly cryptocurrency of Libra Investment Token. The efficacy of concentration
reserved by safe central bank assets. Libra takes aim at cross- limits and other controls will be important for the product's
border payments and remittances and the underlying high- regulatory acceptance.
fee financial market infrastructure of correspondent banks.
The addressable market is global capital flows, rather than
any one nation's e-commerce or digital payments, and the
potential pitfalls rise to those faced by nation-states.

Company Website

Libra's future may prove more mundane: regulation as a

payment system and money-market fund sponsor. Libra
tokens will be runnable money-like instruments, attracting
huge regulatory scrutiny.

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Bloomberg Crypto Outlook – August 2019 Edition

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