Bloomberg's latest report: Bitcoin is brewing a massive bull market

In the past, Bitcoin was a means of speculative appreciation, but now it has transformed into a value storage mechanism similar to gold, and its maturity is being further improved.

Recently, Bloomberg released a report titled "Bitcoin Maturity Leap", which stated that Bitcoin is preparing for a massive bull market. In the report, the author elaborated on the correlation between Bitcoin and the S&P 500, gold, zero interest rates and negative interest rates. The report stated that stock market fluctuations have accelerated Bitcoin's transition to "digital gold". We believe that 2020 will be able to determine whether Bitcoin can transform from a risky speculative asset to "digital gold". From a volatility perspective, Bitcoin volatility seems to have decreased, while stock market volatility has begun to rise. Such a market reaction will also allow more people to transfer funds to crypto assets.

The report said that the correlation between Bitcoin and gold was initially pulled down by the stock market decline, but now, as global central banks have implemented unprecedented quantitative easing policies, the correlation between Bitcoin and gold has reached an all-time high. Bitcoin's correlation with stocks has decreased, and its correlation with gold has increased. We believe that when the S&P 500 index falls rapidly, people will begin to pay attention to other risk assets, and the Bitcoin price foundation will be further consolidated, and the correlation between Bitcoin and gold will also increase. Our chart depicts the 52-week correlation trend between Bitcoin and gold, and you will find that the current correlation between Bitcoin and gold has reached its highest level since 2010. Bitcoin's correlation with gold is twice that of Bitcoin's correlation with stocks. In the past, Bitcoin was a means of speculative appreciation, but now it has transformed into a value storage mechanism similar to gold, and its maturity is being further improved.

The following is the full report:

Bloomberg Crypto Outlook

• Bitcoin matures amid financial crisis

• Stock market turmoil accelerates Bitcoin's transition to "digital gold"

• Futures 'tamed' Bitcoin and turned it into a digital version of gold

• Bitcoin and gold’s correlation is increasing

• The coronavirus outbreak has led to a strengthening of some Bitcoin on-chain indicators

• The coronavirus pandemic may give Libra a new lease of life and also inspire the concept of a digital dollar

Bitcoin matures amid financial crisis

(Bloomberg Intelligence) -- We believe the current stock market volatility is only temporary and the end result may be reminiscent of gold after the 2008 financial crisis. Bitcoin is a first-generation cryptocurrency that was launched in 2009 and has performed relatively well, with a drop of only a quarter of the S&P 500 in 2020 despite being five times riskier than the S&P 500 on a volatility-weighted basis. For an asset that is only 10 years old, Bitcoin's 24/7 price transparency and the lack of restrictions, circuit breakers or third-party oversight have made it a remarkable achievement.

2020 is a critical year for Bitcoin to transition to quasi-currencies such as gold. We hope that Bitcoin can pass this test smoothly. Bitcoin is different from the traditional stock market, but it is somewhat similar to gold. Although it has suffered a certain impact during this period, under the unprecedented global quantitative easing monetary stimulus policy implemented by global central banks, Bitcoin's foundation is becoming more and more solid, and its adoption rate has also increased significantly.

01 Risks shared with the stock market

After the financial market turmoil, although the prices of Bitcoin and gold fell, they quickly recovered. We believe that this year's stock market turmoil has supported the appreciation of Bitcoin and gold prices. Bitcoin and gold seem to be consolidating the bull market, and compared with the stock market, Bitcoin and gold took less than two months to return to the support level.

Amid the stock market crash, Bitcoin is quietly heading towards a bull market

If we refer to historical data, we will find that after each market turmoil, Bitcoin will rebound with strong momentum, and the reduction in the number of stocks caused by the halving of Bitcoin block rewards will also be the main driving force for its price growth. According to our chart analysis, the decline of Bitcoin in 2020 remained above the low point in 2018, which was about 80% of the price difference from the peak price. In contrast, over the past month, the S&P 500 index has fallen below the price bottom two years ago after hitting an all-time high. The damage caused by the new coronavirus epidemic to the global market is similar to the financial crises in 2008-2009 and 2000-2002, but the duration and impact are much greater.

As global stock markets begin to gradually rebound, Bitcoin and gold will become the main beneficiaries under the current unprecedented global monetary stimulus policies.

The macroeconomic impact of the coronavirus pandemic has accelerated the process of Bitcoin's value acquisition relative to other cryptocurrencies. The speculative impulse in the Bloomberg Galaxy Crypto Index (BGCI) at the beginning of 2020 has dissipated. As of April 2, the Bitcoin price index has risen by nearly 40% in the past year, while the BGCI index has fallen by about 13%. Our chart depicts that the Bitcoin-BGCI ratio is recovering from the drop below the 52-week moving average, and the recovery is faster than other cryptocurrencies.

Bitcoin’s advantage over its competitors will continue

Initially, the correlation between Bitcoin and gold was pulled down by the decline in the stock market, but now, as global central banks have implemented unprecedented quantitative easing policies, the correlation between Bitcoin and gold has hit an all-time high.

Zero and negative interest rates have helped push gold prices higher. We believe current market conditions are favorable for gold prices to rise. However, there are some major risks that could derail the gold bull market (indeed, such risks have been prevalent for much of the past decade), including: rapidly rising equities, a stronger dollar, and rising real interest rates, all of which emerged after gold prices hit an all-time high in 2011. With benchmark interest rates at zero or negative and the Fed embarking on an unlimited quantitative easing monetary stimulus similar to that of 2008, we expect the next step in the gold price recovery process to be a step-by-step recovery process that continues all the way to the peak of $1,900/ounce.

The next phase of gold’s recovery: Breaking through the $1,900 peak

If the script of the 2008-09 financial crisis is followed, the next step could herald a recovery in gold prices. The price threshold for gold to break out after the global financial crisis was $1,000, which in today's market climate could be equivalent to $1,900.

02 In 2020, the market may test the maturity of Bitcoin

Stock market volatility has accelerated Bitcoin's transition to "digital gold". We believe that 2020 will be the year to determine whether Bitcoin can transform from a risky speculative asset to "digital gold". From a volatility perspective, Bitcoin volatility seems to have decreased, while stock market volatility has begun to rise. Such market reactions will also cause more people to transfer funds to crypto assets.

Bitcoin's correlation with stocks is decreasing, while its correlation with gold is increasing. We believe that when the S&P 500 falls rapidly, people will start to pay attention to other risk assets, and the Bitcoin price foundation will be further consolidated, and the correlation between Bitcoin and gold will also increase. Our chart depicts the 52-week correlation trend between Bitcoin and gold, and you will find that the current correlation between Bitcoin and gold has reached its highest level since 2010. Bitcoin's correlation with gold is twice that of Bitcoin's correlation with stocks. In the past, Bitcoin was a means of speculative appreciation, but now it has transformed into a value storage mechanism similar to gold, and its maturity is being further improved.

Bitcoin transitions from "S&P bear" to "gold bull"

Bitcoin has returned to the price consolidation area of ​​2018 (around the $6,000 range), so the recent period is very worth paying attention to because Bitcoin is likely to have a bull run after the gold bull run.

Cryptocurrency Performance on BI COMD

(As of 8:00 a.m. New York time on April 2)

In terms of volatility, Bitcoin seems to be performing better. If you can use historical data as a reference, you will find that the volatility of traditional stock markets is rising, while the volatility of Bitcoin is decreasing, which is more favorable for Bitcoin. Although Bitcoin's average annual volatility is about 5 times that of the S&P 500 over the past year, in 2020, the average volatility of Bitcoin has only fallen by about 5%, while the stock index has fallen by nearly 22%. For more mature assets, this indicator will be seen as a sign of strength difference, and it also marks that Bitcoin is beginning to transition to higher adoption, maturity, and performance, just like gold.

Volatility favors Bitcoin over stocks

Our chart shows that Bitcoin's 260-day volatility is decreasing, while the S&P 500 is beginning to see an increase in volatility due to the turmoil in the stock market. Relative to the S&P 500, we see that Bitcoin, which has a lower volatility, is beginning to rise in price.

Gold and Bitcoin have gotten out of their shell. We believe that the appreciation of gold and Bitcoin is mainly due to the need for safe haven assets after major market turmoil. If history is any guide, the stock market may take longer to recover in 2020 (depending on the coronavirus pandemic). Bitcoin did experience a sharp drop, but this drop should be temporary, and both Bitcoin and gold have rebounded. According to our chart analysis, gold and Bitcoin prices fell by about 40% and 80% respectively from their peaks, but recovered quickly and on a stronger base.

Bitcoin and gold prices recover, but stocks fail to turn around

The S&P 500 index reached a record high just over a month ago, but with the outbreak of the new coronavirus, many past market analyses seem to have been "invalidated." From a 52-week perspective, the S&P 500 index has fallen 14% in history, and during the global financial crises of 2000-01 and 2008, the S&P 500 index fell more than 35%.

03 Futures “tamed” the Bitcoin bull market

Futures have "tamed" digital gold Bitcoin. The previous surging Bitcoin bull market was "tamed" with the arrival of CME futures, but we believe that this is actually part of Bitcoin's transition to "digital gold." The increase in open interest and trading volume in Bitcoin futures means that Bitcoin adoption is increasing, which is very important for Bitcoin, an emerging digital asset with limited supply.

Futures helped tame the Bitcoin bull run. Rising futures open interest represents a rise in mainstream adoption of Bitcoin, which we believe will boost prices, even as volatility continues to rise. Bitcoin supply is limited, so demand and adoption are the determining factors for Bitcoin price. Our graphic depicts the taming process, where you can see the upward trend in Bitcoin futures open interest and price. The recent stock market turmoil was the worst since Bitcoin futures were launched, which "spurred" Bitcoin back to the most tradable price range: just below $7,000.

Bitcoin futures open interest and adoption are both increasing

Despite the stock market turmoil, the increase in open interest in Bitcoin futures, the decline in volatility, and the relatively good price performance all indicate that Bitcoin is transforming from a speculative crypto asset to "digital gold." In the past year, the price of Bitcoin has risen by about 40%, while the S&P 500 has fallen by 15%.

Rising futures volumes and Bitcoin maturity. We believe that rising Bitcoin futures volumes represent the taming of the highly speculative bull market. In the first quarter of 2020, CME Bitcoin futures contract volumes increased by approximately 120% year-over-year, reflecting the maturing of the market. Bitcoin has recovered from the depths of the bear market, and the emergence of Bitcoin options also indicates that mainstream adoption is becoming greater. Our chart depicts the stable performance of Bitcoin's 30-day average futures volume, while Bitcoin's price has returned to the most tradable price range, all of which support our view of a bull market consolidation.

Futures-settled Bitcoin enters a wide range of markets

04 Bitcoin and Gold Correlation

The correlation between Bitcoin and gold has further improved. From historical data, every time the price of Bitcoin fluctuates sharply, it seems that there will be a sharp rise in price. The trend of Bitcoin price seems to be more and more similar to that of gold price. The decline in Bitcoin volatility and the rise in gold prices seem to indicate that the correlation between the two is stronger.

The correlation between Bitcoin and gold volatility has also increased. The rising gold price and the falling Bitcoin volatility have provided support for the rise in Bitcoin prices. Our analysis chart shows that Bitcoin's 180-day volatility has declined, while gold prices have increased. This situation is very similar to 2015, when the Bitcoin-to-gold price ratio reached its lowest point, but then started a bull run until the price peak in 2017. Bitcoin's natural maturity has reduced volatility, and when volatility hits bottom, it is usually accompanied by a price recovery.

Bitcoin volatility falls, gold volatility rises

Gold volatility has hit a nearly 20-year low since 2019, but has now risen, and prices are also rising. Perhaps volatility provides momentum for continued price increases. Compared with gold, Bitcoin volatility is actually declining. Bitcoin's 180-day volatility index is of great significance. In October 2015, the index reached a historical low (about 40%), and then the Bitcoin bull market began.

Bitcoin's risky asset attributes have weakened. We believe that the current price pressure may only be temporary as the inventory volume decreases due to the halving of Bitcoin's block rewards. When the S&P 500 fell nearly 14% in the fourth quarter of 2018, Bitcoin fell about 45%, and both bottomed out at the same time. This phenomenon shows that Bitcoin is still vulnerable to stock market declines, but there may be differences between the two when they rise. For example, the S&P 500 fell 20% in 2020, but Bitcoin still rose by about 9% and hovered around the $8,000 support level. Our analysis chart depicts the correlation between Bitcoin and the S&P 500, especially when the stock market fell rapidly, this correlation is more obvious.

Compared to the stock market crash in 2018, Bitcoin is more stable now

05 The coronavirus outbreak has led to a strengthening of some Bitcoin on-chain indicators

The COVID-19 epidemic has "stimulated" the Bitcoin chain indicators to improve. The good performance of Bitcoin chain indicators has provided strong support for the price increase. Among them, the COVID-19 epidemic has "stimulated" the performance of Bitcoin in the entire cryptocurrency market. The current indicators such as Bitcoin used addresses and adjusted transaction volume show that Bitcoin has laid a solid foundation. We believe that the Bitcoin block reward halving in May will also become another driving force for the rise in Bitcoin prices.

Bitcoin supply reduction vs. on-chain metrics. Bitcoin supply reduction vs. major on-chain metrics.

On April 2, when the Bitcoin price was around $6,600, the 30-day average number of active addresses was close to the number when Bitcoin was at $9,000. We find that the 10-day average transaction price is a more reliable price indicator, and Bitcoin’s limited public blockchain and growing adoption are key price determinants.

The increase in the number of Bitcoin addresses supports the view that Bitcoin is transitioning to "digital gold."

Both transaction volume and addresses show an upward trend

06 Introduction to blockchain topics: Outlook

Coronavirus could give Libra a new lease of life and determine the fate of the Fed’s digital dollar

The coronavirus pandemic has highlighted technology gaps, but it also presents opportunities. The coronavirus pandemic may focus investors’ attention on blockchain technology and use this emerging technology to solve various vulnerabilities that emerged during the outbreak. Although investors believe that blockchain technology still cannot achieve actual business results even if a large amount of money is invested, the fact that many people work from home in early 2020 due to the coronavirus pandemic may change the blockchain industry. Investments in this field often show a circular logic, that is, funds tend to chase addressable markets that are already well served or protected by regulatory moats.

Venture-backed fintech financing

As investors begin to consider the economic pressures of mass quarantine, we think the mortgage market could be a potentially fertile area. Contactless transactions (not just payments) and the rise of data ownership “status” could also come into focus.

Central bank digital currencies could compete with Libra. If the Fed and other central banks decide to go cashless by issuing digital currencies, commercial banks will likely play a key role. If non-bank financial companies have direct access to central bank funds, this could have unintended consequences for the Fed and remove the role of “middlemen” in credit creation and maturity transformation mechanisms. Although legislation may be required, the economic recession caused by the new coronavirus epidemic may stimulate the Fed’s interest in central bank digital currencies, which can provide more direct stimulus measures outside of financial markets.

BIS Analyzes Bitcoin’s Place in Global Finance

If digital currencies such as Facebook’s Libra take off, central banks may also adjust their strategies accordingly. The Fed may need to be more open to regulated private currencies if alternatives such as Bitcoin weather the coronavirus crisis more easily than in the past.

Wholesale digital tokens could reshape bank liquidity. Blockchain-based wholesale digital tokens—such as JPMorgan Chase’s JPM Coin—could revolutionize interbank payments this year. Once the principles are understood, certain blockchain applications could be used to address liquidity issues that have arisen during the coronavirus pandemic (particularly for mortgages). Large banks could have a first-mover advantage in establishing a more efficient and cost-effective dominant settlement platform. To the extent that wholesale tokens represent claims on safe-haven assets such as the U.S. dollar, central bank reserves, or Treasury bills, we believe regulators will encourage more technological innovation in the coming years.

BIS evaluates token programming model

Wells Fargo, JPMorgan, US Bancorp, Truist and Citizens are among the top 20 mortgage lenders in the U.S. who could benefit from blockchain mortgage technology.

Market infrastructure may finally be transformed. In recent years, many blockchain projects may have been more hype than reward. Ripple Labs' partnership with MoneyGram in 2019 shows that the market still believes that traditional cross-border payments can also be disrupted, but Ripple's own cryptocurrency exposure may pose a threat to its enterprise software business, and the project's investors, including Mastercard, Visa, Capital One, Citigroup and Bank of America, may just be hedging their risks. With the support of JPMorgan Chase and Wells Fargo, Microsoft and IBM are applying blockchain to market infrastructure, and the two are in competition.

Key points:

Central bank wholesale payment systems should work like blockchains, so these legacy systems are in urgent need of an update. In 2016, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was affected by a single fax machine failure. Nasdaq, ICE, CME and other exchanges that run on centralized ledgers will not sit idly by.

Is blockchain a dull and regulated financial market tool? In fact, common standards and platforms are two crucial elements for banks and exchanges to use blockchain technology for large-scale clearing, settlement and payment, but any new system will attract close scrutiny from government regulators. The U.S. Treasury and the Federal Reserve closely monitor financial market infrastructure at all times and have also designated critical financial infrastructure systems (FMUs) under the Dodd-Frank Act.

Critical financial infrastructure systems are heavily regulated and owned by quasi-governmental utilities or by a pool of stakeholders.

Key points:

We believe that some private companies are very interested in creating stablecoins based on government safe asset reserves, but they have a long way to go because creating an easy-to-operate, currency-like asset outside the commercial banking system will raise great concerns and concerns from regulators.

Screenshot of Bloomberg's key pages (8 a.m., April 2, New York time)

Market access data on BI COMD

Source: Carbon Chain Value

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