October 2021 Edition Bloomberg Galaxy Crypto Index (BGCI)

The Bloomberg Galaxy Crypto and DeFi indexes convey an enduring bull market in digital currencies following a sharp correction that cleansed speculative excesses. Many of the reasons for the summer decline are bullish long term, notably a China ban on cryptos that could prove futile and set the nation -- not the crypto market's progress -- back. Juxtaposed is the U.S. embrace of crypto assets with open discourse and regulation. China could continue pushing back on digital currency, but we believe it's incapable of restricting a global free market of open-source software-based assets. Reluctant acceptance might be inevitable.

Finally Time for $50K Bitcoin?

Is $50,000 Resistance Set to Flip to Bitcoin's Support? Probably. Bitcoin's $50,000 resistance point since May appears ripe to become the crypto's support value in 4Q. We view the $40,000 mark as similar to the crypto's $10,000 launchpad from 4Q20. Parallels are visible from about 4x higher. The 2021 average price is $44,500, and adoption and demand are on the rise vs. diminishing supply.

Bitcoin, a Bear or Refreshed Bull Market?

Bitcoin has weathered a storm of bad press and banning in 2021, yet there's stalwart support around $30,000. At the start of 4Q, we see similar underpinnings that resulted in the 171% gain in 4Q20. Wall-of-worry sentiment appears elevated in an environment of increasing demand and adoption. Our graphic depicts Bitcoin in a quarterly bull-flag consolidation pattern, unable to breach $30,000 support and knocking on the door of $50,000 resistance. If the benchmark crypto catches up a bit to the Bloomberg Galaxy Crypto Index (BGCI), Bitcoin would be closer to $70,000.

Crypto-Assets Breaking Away vs. Equities

Up about 1,000% since the end of 2019, the Bloomberg Galaxy Crypto Index (BGCI) appears to have two major advantages vs. the S&P 500 -- cryptos reflect a potential revolution in money and finance and have had a major pullback since their 2020 swoon. Our graphic depicts the equity market basically tracking quantitative easing as measured by the upward trajectory of G4 central bank balance sheets. Both indexes represent risk exposure, but unlike the S&P 500, the BGCI includes Bitcoin, which is well on its way to becoming the digital reserve asset in a world going that way.

Bitcoin's Advantage vs. Equities: A Discounted Bull

The May decline of most assets on the back of Bitcoin showed the crypto has mainstream appeal, with potential outcomes in its favor. Rising equities should keep high-beta Bitcoin buoyant, but if the stock market drops, more stimulus will solidify underpinnings for the digital reserve asset. It was only in November that Bitcoin's 180-day volatility dropped below that of the Nasdaq 100 Stock Index. With the Bitcointo-Nasdaq price ratio at about 1-to-1 near the end of 2020, the indication was the benchmark digital asset was gaining an upper hand. Our graphic depicts the ratio backing up to the old peak at about 3x after reaching a new high.

Not Diversifying in Cryptos May Be Greater Risk.

The world is becoming more digital, favoring the dollar and pressuring gold. Outlooks for the greenback, gold, broad commodities and most assets may be increasingly inadequate if not considering developments in crypto assets. Organic digital adoption of the greenback is a headwind for dollar-based commodities, and notably gold, but we see the old analog reserve asset as sufficiently discounted vs. Bitcoin. Our graphic depicts the relative outperformance of the Bloomberg Galaxy Crypto Index vs. gold since the peak in total known gold ETF holdings in 4Q20 -- about when Bitcoin showed sustainability above the $10,000 threshold.

source: https://assets.bbhub.io/promo/sites/12/1411131_Crypto-October2021Outlook.pdf