The bitcoin price surged back above $20,000 per bitcoin but has failed to maintain momentum with some investors saying they’re not yet ready to call the [market] bottom and others identifying what they call “a massive opportunity.”
Now, JPMorgan analysts have warned bitcoin’s cost of production has dropped by more than $10,000 per bitcoin in just over a month—something they think could potentially wipe $160 billion from bitcoin’s near-$400 billion market capitalization.
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“The production cost is perceived by some market participants as the lower bound of the bitcoin’s price range in a bear market,” JPMorgan strategists led by Nikolaos Panigirtzoglou wrote in a note this week that was first reported by Bloomberg.
The cost to “mine” one bitcoin has crashed over $10,000, from $24,000 at the start of June to around $13,000 now, according to JPMorgan estimates, “driven almost entirely by the decline in electricity use as proxied by the Cambridge Bitcoin Electricity Consumption Index ( CBECI).” A decline to $13,000 would represent a further 35% price crash from the current $20,000 level.
The bitcoin price has been hovering around $20,000 per bitcoin since crashing from its previous support level of $30,000 in early June, piling pressure on crypto companies that are facing a liquidity crisis. The closely-watched $20,000 bitcoin price level is psychologically important as it was the peak of the late-2017 bitcoin bull run.
“While clearly helping miner’s profitability and potentially reducing pressures on miners to sell bitcoin holdings to raise liquidity or for deleveraging, the decline in the production cost might be perceived as negative for the bitcoin price outlook going forward,” the analysts wrote.
The latest JPMorgan warning comes after the bank said last month so-called bitcoin miners—who use high-powered computers to secure the bitcoin network in exchange for freshly minted coins—could be forced to sell their bitcoin to meet costs, potentially pushing the price lower.
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The bitcoin price has crashed by around 70% after hitting an all-time high of almost $70,000 in November last year, falling along with stock markets as the US Federal Reserve and other central banks around the world battle soaring inflation in the aftermath of the Covid -19 pandemic, lockdowns and historic stimulus measures.
“With June’s US consumer price index data showing a 9.1% increase from last year, bitcoin’s corresponding price drop reflects a trend we’ve seen in recent months of bitcoin’s price moving largely in tandem with the traditional financial markets,” Matt Senter, the chief technology officer at bitcoin rewards app Lolli, wrote in emailed comments.
“We will only see a decoupling of bitcoin’s price from the traditional financial markets once there is greater mainstream adoption and understanding of bitcoin as not only a store of value but a payment rail and a way of strengthening our legacy monetary systems.”