Bloomberg Intelligence: Crypto Outlook 2023 | Hot Wallet

I’m Scott McGregor, at Scottrades on Twitter, this is the Hot Wallet Podcast with an update on the Crypto Landscape from Bloomberg intelligence. 

Bloomberg Intelligence Released their outlook for Digital Assets in 2023, entitled The Code Committed No Crime. Of course, that refers to the fact that The recent blow-up of FTX wasn’t because of a problem with the Bitcoin software but was really a fraud committed by people inside FTX and Alameda Research. This report from Bloomberg is 9 pages of the current State of Crypto, How the S.E.C. lost U.S investors Billions but not approving a Bitcoin Spot ETF, The Current Bitcoin Trading Range, what a Bottom in the market should look like, and a few things to look for next year to help turn the tide of the bear. So, Let’s dive in! 

Firstly they mention how Crypto was the fastest horse on the way up in 2020 and 2021 and sadly the biggest loser on the way down. This is typical of High Risk and Highly speculative assets, they tend to overshoot on hype to the upside and usually get hit the hardest when the market goes Risk off. We saw this exact thing happen in the Canadian Cannabis space in 2018 as PotStocks ran up to a catalyst, the legalization of Recreational Cannabis in Canada, and sold off as soon as the date of legalization happened. If you look at the chart of Canopy Growth it never made a new high after Legalization. In crypto, The top in 2021 was marked by the launch of a Futures Based ETF which allowed funds to either go long or short the asset via futures contracts on the major stock exchanges. 

Bloomberg notes that “a year from now, the market expects the Federal Reserve to once again ease monetary conditions and they expect Crypto to once again outperform most traditional assets.” 

Bloomberg asks …Is Crypto Dying Or Gaining significance?  

Their “bias is to the latter. They say that there’s an unfavorable Risk Reward of NOT partially allocating to the revolutionary asset class as part of a global asset mix and that Cryptos are ripe to resume proliferating.” 

Now of course, this is a personal decision based on your own risk tolerance. You’ll want to understand they aren’t saying to yolo into tokens named after dogs or Elon Musk. As I always say, know what you own and why you own it. 

They also note that In relative Terms, Bitcoin has never been cheaper. This has a lot to do with the crash of Terra Luna and the Crash of FTX but unlike the 2015-2018 bull market, “The price has never dropped more than 58% below the 100 Week Moving Average.”

The report also points out that “despite the severe drawdowns in Crypto, The Bloomberg Crypto Index is still up 200% since the end of 2019 vs 20-60% for Gold.” 

Bloomberg Intelligence notes that the current Trading range for Bitcoin could be “as low as $10,000 and as High as $40,000 U.S. Dollars. Saying, even if that happens and even if bitcoin gets there and Ethereum breaches the 1000 Dollar level, those price zones represent extreme discounts. 

In terms of what might change the tide in 2023, they mention the “Federal reserve and the most aggressive fiscal tightening in over 40 years” and to look for a loosening of monetary policy ahead. Even going as far as saying “if they don’t the world may fall into a deep recession which would put pressure on all risk assets”, By that they mean stocks, commodities, home values, etc. 

Another interesting take on Crypto from Bloomberg is their comments on Stablecoins and the idea of a Digital Dollar. 3 of the top 5 Cryptos are stablecoins from Tether, Circle, and Binance USD which are issued by Paxos. They said: “Our bias is that there's little in the long term to stop this advancing technology from doing similar to what the futures and exchange-traded-funds markets did. Non-fungible tokens and decentralized exchanges are additional advances 

made possible by Ethereum.”

On the same page here they note Crypto as a leading indicator for Risk assets. The Crypto market started to turn before the Stock Market in early November of 2021 and if we do see lower prices come into play it could trigger selling in stocks and commodities as those markets test lower prices as well. 

So, what could a bottom look like?  And What will stop the Federal Reserve from pushing us into a recession? Bloomberg says, their bias is “that the great risk-asset reversion of 2022 is unlikely to go out like a lamb, and cryptos are a leading indicator. A lower plateau appears necessary to curtail Fed tightening.” That could mean hitting those extreme discount levels mentioned earlier but also means potential lower lows in the stock market. They also say “they would want to see a trend change on multiple time frames to confirm a cycle low,” meaning Higher Highs on the Daily, Weekly, and Monthly time frames. 

Medium-term, Bloomberg notes “their trend indicators remain firmly bearish with more downside to come”. I think it’s important to point out as well that while we’re seeing Crypto market sentiment at capitulation levels, we aren’t getting that confirmed by price. 

Price in my opinion is the arbiter of truth, so you’ll want to see that turn in conjunction with sentiment and we’re just not getting that yet. 

The writers of the report call out SEC Chairman Gary Gensler by name suggesting “his refusal to approve a Bitcoin Spot ETF has likely cost U.S investors Billions.” Because investors who wanted exposure were basically forced to use offshore exchanges or the Grayscale Bitcoin Trust which has been trading at a huge discount and not a fully regulated and secured Bitcoin ETF like in Canada and elsewhere. They say “The Downfall of FTX highlights one of the advantages of having an approved Spot ETF for Bitcoin in the United States.” They hammer on the Grayscale Bitcoin trust because “unlike an ETF, GBTC's shares can't be created or destroyed, so there's no ability to arbitrage the trust with Bitcoin's price. This causes the price to move independently from Bitcoin's, allowing for steep premiums and discounts.” Bloomberg points out that “GBTC has swung from a 100% premium to a 50% discount, potentially damaging investor returns”. Noting an example, “GBTC shares bought five years ago have fallen 21%, even as Bitcoin has doubled.” Meanwhile, In Canada and overseas the worst NAV discount for a Bitcoin ETF was only 6% compared to GBTC where price is 40% below the value of the assets. They do say that This works in the investor's advantage when there’s a notable premium but other, cheaper alternatives like the Futures Based ETFs and overseas Spot ETFs could erode demand for shares of GBTC. 

There’s a lot here and I thank the authors of this report for being so thorough. I’ll leave a link to the report so you can read it yourself in the description below. I will say Mike McGlone from Bloomberg Intelligence is a great follow on Twitter. 

So that’s the Bloomberg Intelligence Crypto Outlook for 2023. If this was helpful, please leave a review for the podcast and subscribe.  Remember, nothing on this podcast should be considered investment advice, please speak to a qualified financial advisor before making any buying or selling decisions. Bitcoin, Crypto and Digital Assets are still very speculative and the risk of total loss is real. 

I’ll see you next time.