By CCN: JPMorgan doesn’t love bitcoin. The bank - the United States' biggest financial institution by assets - has been historically pessimistic about the flagship cryptocurrency, so just when bitcoin prices started going through the roof, it decided to crash the party with a dire warning.
The crypto winter gave JPMorgan’s bitcoin bears reason to cheer earlier this year. The Wall Street firm’s analysts were bandying about a $1,260 bitcoin price target in January, warning HOLDers that they should prepare for more pain in case the crypto winter continued.
Bitcoin’s impressive price rally has made those analysts eat their words as the digital currency is now trading over $7,900. But JPMorgan says that the current bitcoin price is reminiscent of 2017’s boom-bust pattern when the cryptocurrency’s market price had surged ahead of its intrinsic value and then crashed spectacularly.
JPMorgan strategists wrote in a note (via Bloomberg):
Over the past few days, the actual price has moved sharply over marginal cost. The divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time this divergence was resolved mostly by a reduction in actual prices.
The note tells us that JPMorgan is trying to rain in on bitcoin’s parade, giving bears fodder by telling them that bitcoin’s current price doesn’t reflect its true value. But there’s a flaw in the JPMorgan has arrived at the “intrinsic value” of bitcoin.
JPMorgan has arrived at bitcoin’s intrinsic value by treating the digital currency as a commodity. The Wall Street firm estimated the cost of “producing” a bitcoin using variables such as electricity expenses, hardware efficiency, and electricity expense.
But it seems like JPMorgan forgot that the current bitcoin price rally has a lot more legs than the last one, and it doesn’t make sense to value it based on the cost of mining. That’s because bitcoin is proving to be a solid alternative investment at a time when the stock market is in turmoil, thanks to the US-China trade war.
As it turns out, the Chinese are dumping their currency in favor of bitcoin to escape the yuan’s painful decline.
Meanwhile, institutional investors are piling into bitcoin as the digital asset is believed to be better than gold as a safe-haven investment. Asset management firm Morgan Creek Digital’s CEO, Mark Yusko, estimates that the price of bitcoin could reach as high as $500,000 if the cryptocurrency is valued like gold:
So if we get the amount of value in total Bitcoin market value or network value equal to gold, that’d be about $7.4 trillion divided by 21 million coins, although there aren’t really 21 million left, and you get around $400,000 a coin, maybe $500,000 a coin. Now, when does that happen? It’s probably over a decade or maybe even more.
A survey carried out by Fidelity Digital Assets has found out that almost half of the institutional investors that it had surveyed see a place for digital assets like bitcoin in their portfolios.
So, JPMorgan’s claim that the price will crash just because it is trading above the intrinsic value, which has been arrived at by calculating mining costs, is nothing but a farce.
But bitcoin has proved that it has value because of its real-world use cases. So don’t be surprised to see JPMorgan’s famed analysts eating their words once again when the price shoots higher.
Click here for a real-time bitcoin price rally.
This article was edited by Samburaj Das.