A new report from JP Morgan warns of an imminent price correction for the world's largest cryptocurrency. CFOTO/Future Publishing/Getty Images
Bitcoin's price — above $63,000 on Thursday — has reached levels not seen in two years, but the coin's upcoming halving event could push prices down to $42,000, according to analysts at JPMorgan.
“The cost of producing Bitcoin has served as a floor for Bitcoin prices,” the analysts wrote in a report released Wednesday, estimating that post-halving production costs could double to about $53,000. This could cause a 20% drop in the hash rate of the Bitcoin network, meaning fewer miners would be competing to produce bitcoins simultaneously.
“This $42,000 estimate is also the level we envision Bitcoin prices drifting toward once the euphoria from the post-April Bitcoin halving subsides,” the analysts wrote.
At the halving, expected on or around April 19, the rewards earned by miners per block will decrease from 6.25 to 3.125 BTC, in order to slow the rate at which new coins are minted. While diminishing supply has historically caused prices to rise, increasing production costs can also impact the price of Bitcoin as fewer miners are able to remain profitable.
“There could also be some horizontal integration through mergers and acquisitions between bitcoin miners across regions to leverage synergies in their businesses,” JP Morgan analysts concluded, noting that the share of publicly traded miners in the hashrate is likely to increase.
Bitcoin is approaching an all-time high of around $69,000, a move that has exhausted cryptocurrency providers like Coinbase, which suffered outages as app and website traffic surged. But JPMorgan's bearish outlook could dampen optimism about the longevity of this upward trajectory.
“We expect consolidation,” said Fred Thiel, CEO of the world's largest publicly traded miner, Marathon Digital Holdings. luck. He adds that about 10% to 25% of miners – who are likely smaller players – will go out of business at some point. However, Thiel expects some will return once costs improve.
How much increased production costs will hurt miners is closely linked to the price of Bitcoin, but “even if the reward price drops by 50%, if the price of Bitcoin reaches $100,000, they will still make the same amount of money.” “Two months after the halving,” said Alessandro Cecere, head of the marketing department at the Luxor Mining Complex.
In fact, after the previous three halvings in 2008, 2012 and 2016, the hashrate temporarily declined before rebounding.
But like JPMorgan, Galaxy Digital CEO Mike Novogratz also sees some bearish signs, at least in the short or medium term. “I would say we've reached very frothy levels,” he told Bloomberg TV on Thursday.
He added during the interview: “I would not be surprised to see some corrections and some consolidation.” “If it corrects, it could correct to the mid-$50,000s, before shooting out to the new high.”
