Why JP Morgan’s BTC Price Prediction of “Bitcoin to Fall Below $1,260” is an Overstated Gloom
According to the JP Morgan analysts, the cost to create one Bitcoin has been averaged around $4,060 globally in the fourth quarter. And with Bitcoin currently trading around $3,400, it doesn’t sound good at all. The analysts have been reported as stating,
“The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners.”
For low-cost Chinese miners, the estimate has been $2,400 per Bitcoin where electricity is regarded as the biggest cost for miners and excludes equipment. And with negative margins analysts said, it is expected more high-cost producers will get dropped out. Furthermore, if there is capitulation, the remaining miners would see the cost fall and that means the marginal cost drop to less than $1,260 per Bitcoin.
JP Morgan Report Remisses the Miners’ Fact
For one, according to the Diar’s research, “should their valuation method be sound, the gloomy numbers may be less than estimated by Park Avenue.”
However, talking about the potential $1,260 floor, it neglects the fact that “small retail miners have already met their exodus since October last year with mining returns going into the red. As such, massive declines in a hash power now steady is unlikely.”
The Diar research further states,
“The cost of production will however go down on the back of new, more efficient equipment being deployed. However, with a limit set on sale quantity, efficient miners growth will likely come online gradually. But the halving only 18 months away would put the production cost of Bitcoin right back up to $3000 at current hash power levels.”
Also, Wrong Valuation Technique
According to Omid Malekan, who is the author of “The Story of the Blockchain” wrote a Medium post, about the wrong valuation technique used by JP Morgan for Bitcoin. The problem is with using the stable traditional commodity valuation which is useless for Bitcoin.
As for why doesn’t this apply to Bitcoin, the “production is price inelastic,” as new coins are minted every new block where block times are set an average of ten minutes. And anytime the network deviates from this, the difficulty adjustment resets the block time.
“This makes Bitcoin unlike any other commodity, as the rate of new Bitcoin production never changes beyond a two week window for any reason, including the amount of mining.”
The cost of mining which is the focus of JP Morgan report, according to Malekan is irrelevant to price. He further states, with Bitcoin, demand is actually negatively impacted by price as with decline in price, the store of value appeal along with the security of the overall network declines.
According to him, the marginal cost pricing doesn't apply to Bitcoin but being a new asset class, everyone is “grasping at straws to value it.
He concluded with,
“instead of listening to J.P. Morgan the firm, we should just listen to J.P. Morgan the man, who according to legend once responded to someone asking him what the market will do by predicting that ‘it will fluctuate.’”