Bitcoin: JPMorgan sees a $160 billion “bomb”

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by Billy Bambrough

Bitcoin was also under pressure last week as fears of a possible recession raged, weighing on markets. The price of the most popular cryptocurrency climbed back above $20,000, but failed to maintain its momentum, while some investors appear wary of saying that Bitcoin has already “bottomed out”, while others argue that they see a “huge opportunity” ahead.

For their part, analysts at JPMorgan warned that the cost to “mine” a Bitcoin has fallen by more than $10,000 in a month. They believe that this development could wipe out $160 billion from Bitcoin’s $400 billion market capitalization.

“Production costs are interpreted by some market participants as the lower limit of Bitcoin’s price range in a bear market,” JPMorgan analysts led by Nikolaos Panigirtzoglou stressed in a note.

The cost to “mine” a bitcoin has fallen from $24,000 in early June to around $13,000, JPMorgan estimates, “after being driven by a reduction in electricity usage, according to the Cambridge Bitcoin Electricity Consumption Index (CBECI)“. The decline to $13,000 may signal a deeper “dip” in the price – by 35% – from current levels of $20,000.

Since the beginning of June, when Bitcoin lost the $30,000 support level, its price has been hovering around $20,000, putting pressure on cryptocurrency platforms facing liquidity problems. The psychological $20,000 level is important, as it was the peak of Bitcoin’s upward trajectory in late 2017.

“Lower production costs – while offering greater profits to miners while decelerating the pressure on them to sell Bitcoin portfolios and increase their liquidity – may have a negative impact on the cryptocurrency outlook,” analysts commented.

This latest warning from JPMorgan comes a month after the bank estimated that Bitcoin miners – who use high-powered computers for network security by paying in cash – might be forced to sell their Bitcoin to cover costs, a move that would likely depress prices. 

After the historic high of last November, when the price of Bitcoin reached 70.000 US dollars, the world’s most popular cryptocurrency has plummeted by 70%, following the stock markets downhill as the Federal Reserve and other central banks around the world try to tame the inflationary rally in the wake of the pandemic, lockdowns to limit the spread of the virus, and unprecedented government measures taken to stimulate economies. 

“Based on June data showing that the US consumer price index climbed a ferocious 9.1% year-over-year, Bitcoin’s decline reflects the negative trends seen in recent months, with the crypto having coordinated its stride with traditional financial markets,” Lolli’s Matt Senter pointed out in an email commentary. “We will only see Bitcoin’s price decouple from traditional financial markets when the digital currency is accepted and adopted – by greater masses – not just as a store of value, but as a means of payment and as an enabler of our traditional monetary systems,” he added.

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