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JPMorgan: Bitcoin price at $42,000 after halving

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According to an analysis by JPMorgan, the price of Bitcoin will drop to $42,000 after the halving.

This is not the only similar prediction circulating, as many expect a correction, and the halving could be the right time for it to happen. 

April’s halving and JPMorgan’s analysis on the price of Bitcoin

It is possible that the February rise in the price of Bitcoin to over $60,000 was also driven by expectations for the halving, as well as the impact on the market of new ETFs.

In other words, it is possible that markets are already pricing in the halving and its effects on the price, since it is an inevitable and predictable event.

Although the exact date is not yet known, it is already known with precision and absolute certainty that it will occur at block number 840,000.

Since there are less than 7,000 blocks left, and one is mined approximately every 10 minutes, or slightly less, it is estimated that the halving should occur after mid-April.

In the past, after all the halvings that have already taken place, the price of Bitcoin has started to rise, although it did so after several months. Most likely, the markets are expecting a similar dynamic this time as well, and it is possible that they are already pricing it in. 

However, the impact of the halving on the price of Bitcoin is not immediate, so at the time of its occurrence a sort of sell the news could happen. 

JPMorgan’s hypothesis

JPMorgan analyst, Nikolaos Panigirtzoglou, adds another element to this reasoning. 

Indeed, with the halving, the earnings for Bitcoin miners will be greatly reduced, as their reward will be halved. Transaction fees, which are their other source of income, probably will not decrease, but they are much lower amounts.

Currently the reward consists of 6.25 BTC, which are created and given to the miner who manages to validate a single block, but after the halving it will be reduced to 3.125 BTC. 

Instead, the fees are variable, but in this period they rarely exceed 0.5 BTC per block. So the miners’ earnings will go from just under 7 BTC to just over 3.5 BTC per block, almost halving.

Furthermore, Panigirtzoglou also hypothesizes an increase in extraction costs, due to the rise in the market value of BTC.

The costs of mining

The main costs that miners have to face are of three types. 

The highest absolute cost is related to electricity consumption. 

Another important cost factor is related to the cooling of the hash extraction systems. 

The third significant cost item is the expense for purchasing mining machines. 

The first cost, related to the consumed energy, is solely and exclusively linked to autonomous and totally independent decisions made by the miners themselves.

So in theory they could also decide to cut it, but the less energy is consumed, the fewer hashes are extracted, reducing the chances of earning. The mining is in fact a competition in which the winner is the one who extracts more hashes, so miners do not benefit from extracting less.

The second cost is related to the first one, because the less energy is consumed, the less heat needs to be disposed of. 

The third voice is decisive at the time of halving. In fact, as the income inevitably decreases, miners will be forced to cut costs, and they will simply do so by turning off the less efficient machines – those that extract fewer hashes with the same amount of energy consumed. 

Turning off the machines, however, makes them less competitive, so it will be convenient for them to replace the old inefficient machines with new very efficient machines that, however, have a significant cost. 

So although in reality overall costs should decrease, they should increase in proportion to revenues, since these will almost halve. 

JPMorgan’s prediction on the price of Bitcoin after the halving

Panigirtzoglou argues that the cost of mining BTC has empirically acted over time as a lower limit for the market price of Bitcoin.

Use the term “empirically” correctly because there is actually no direct link between the average cost of extracting 1 BTC and its market value. 

Simply, it may not be convenient for miners to sell BTC at a lower price than their extraction cost, but it could be convenient for everyone else.

It should not be forgotten that currently all miners collectively extract about 900 BTC per day, while for example the Grayscale ETF alone has sold about 3,000 per day in recent days.

However, the sales of miners, which are constant, influence the price of Bitcoin in the medium/long term, just as they did after all three previous halvings, although months after their occurrence. 

According to Panigirtzoglou, currently the average extraction cost of one BTC would be around $26,500, which is also the amount around which the price of Bitcoin has fluctuated for much of 2023. After the halving, this figure should double, according to the JPMorgan analyst, rising to $53,000. 

But Panigirtzoglou adds that, once the euphoria about Bitcoin has subsided, after the April halving, they estimate that the price of BTC could also drop to $42,000. 

This reasoning seems to make sense, provided that before the halving the price of Bitcoin does not skyrocket further.

That is, a 30% drop in the value of the BTC price after the halving would be normal, but if in the meantime it had risen to $70,000, or even $80,000 as some speculate, a 30% decline could bring it down to just $50,000 or $55,000. 

Therefore, it will not only count the impact of the possible sell the news and the dissipation of the current euphoria, because these two factors combined could lead to a 30% drop. 

It will also depend on the price level from which this retracement will start, because there is still almost a month and a half left until the halving, during which the price could theoretically rise even further. 

It should be noted, however, that there is nothing preventing the price of BTC from retracing by a percentage even higher than 30%, as happened for example in May 2021. 

 Once the halving occurs, in April, the current euphoria could dissipate, and a correction of 30% could occur. 

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