JP Morgan Assesses Bitcoin Value - Overstated Gloom?

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By Diaron Jan 29, 2019
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A perspectives report published by JP Morgan last week saw the Wall Street Major look into the price dynamics of Bitcoin alongside the cost of production. The investment bank sees a potential floor of $1260 for Bitcoin as mining margins tighten forcing smaller producers out, leaving miners with low-cost resources to set a new floor. But should their valuation method be sound, the gloomy numbers may be less than estimated by Park Avenue.

Major institutions may not have piled into cryptocurrency as many hoped, but they are taking notes. The latest JP Morgan report looked at the developments of Blockchain, and assessed Bitcoin's price correlating it with the production costs.

"One way to estimate a quantifiable intrinsic value for Bitcoin is to effectively treat it as a commodity and base it on the marginal cost of production" the report said having estimated 4Q18 production cost for miners with low cost electricity at $2400.

Diar calculations however estimate that average to be closer to $3100 using optimal equipment, wholesale electricity prices and excluding Capital and Operational Expenditure.

The report assessed that fluctuations in hash power may result in smaller miners dropping off, resulting in a lower cost of production for Bitcoin and hence, the potential $1260 floor. However this point may be remiss that small retail miners have already met their exodus since October last year with mining returns going into the red (see chart) (Diar, 8 October). As such, massive declines in a hash power now steady is unlikely (Diar, 14 January).

Bitmain S9 miners, which only recently relinquished its crown to its more efficient bigger brother last month, the S15, would currently run unprofitable at electricity costs over $0.06KWh.


The cost of production will however go down on the back of new, more efficient equipment being deployed (Diar, 26 November). However, with a limit set on sale quantity, efficient miners growth will likely come online gradually. But the halving only 18 months away would put the production cost of Bitcoin right back up to $3000 at current hash power levels.

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Read the original report here.

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