JP Morgan: Bitcoin trades 25% below intrinsic price after halving

  • JP Morgan’s report reveals that the intrinsic price of Bitcoin is 25% below where it should stand. This value is calculated from the average mining cost of 1 BTC.
  • JP Morgan concludes that the mining community has already reacted to the halving and the reduced profitability in the mining sector.

JP Morgan’s May 22nd report reveals key points about the state of the market and the mining sector after Bitcoin’s halving. The report determines the intrinsic price of Bitcoin by calculating the average daily production cost of 1 BTC. In this way, JP Morgan is able to determine that Bitcoin should be priced at around $11,500.

At the time of publication, Bitcoin is trading at a price of $8,877, which is about 25% below the intrinsic price calculated by JP Morgan. The report says:

(…) assuming market participants are rational and that the price is forward looking, the actual price trading 25% below what the intrinsic price would be after the event suggested markets effectively implying a significant decline in mining activity.

This reduction in mining activity is consistent with the 20% drop in Bitcoin’s hash rate, the report states. In addition, JP Morgan determines that the drop occurred at a time when the average efficiency of mining hardware has increased. JP Morgan concludes that energy consumption per GH/s has decreased by 15%, compared to the day before the halving. This is consistent with the theory that, for now, the weight of halving and reduction in rewards is being taken by miners with high costs or obsolete equipment. JP Morgan further outlines:

 (…) the response from the mining community to the decline in revenues from the halving event looks to have been very swift and may be largely behind us.

Open interest for Bitcoin derivatives recovers swiftly

JP Morgan’s conclusion is supported by data from the Santiment firm. According to their findings, Bitcoin’s Network Value to Transaction Rate (NVT) remains positive. Therefore, Santiment estimates that the network is in a healthy state and the price of BTC could recover in the short term:

In spite of BTC’s mild -4.4% downswing today, its NVT looks healthy, and our model is showing a semi-bullish signal. The amount of unique tokens being transacted on Bitcoin network is slightly above average for in May, according to where price levels currently sit.

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At the same time, JP Morgan notes a rapid recovery in open interest for Bitcoin-based financial derivatives. In contrast to the fall of Bitcoin on the “Black Thursday,” which saw a slowdown and recovery of open interest, after the halving the open interest for Bitcoin futures and options on the Chicago Mercantile Exchange has reached new records.

This was probably caused by increased interest from industry giants such as Chase Bank and JP Morgan itself. A few days ago, JP Morgan and Chase announced that they will support Coinbase and Gemini. Bitcoin investor and bull, Mike Novogratz, said that this announcement is a big deal for Bitcoin.

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About Author

Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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