Bitcoin Has Been Soaring, But JPMorgan Warns That 'Halving' Could Trigger An Over 30% Pullback
1min read Bitcoin has been on a robust upward trend recently, as the crypto-currency has accumulated a rise of about 45% since the beginning of the year, and it even broke through the $64,000 mark on Thursday, close to its previous high of $69,000 from approximately 3 years ago.
Besides the surge in demand brought by the Bitcoin ETF approved by the SEC in January, the halving, is also one reason for the rise of Bitcoin.
The halving of Bitcoin, also known as Bitcoin block reward halving, refers to the halving of the reward obtained after producing a new block approximately every four years. This means that after the reduction, the Bitcoin reward corresponding to each block mined is only half of the reward before the halving.
Historically, the halving often brings a surge in Bitcoin, as the event theoretically leads to a shortage of Bitcoin supply.
However, analysts at JPMorgan Chase predict that after this year's halving, the Bitcoin mining industry is expected to further consolidate, which could result in a 20% decline in the Bitcoin network's computational power after the halving. This could ultimately depress the price of Bitcoin.
Based on the past, Bitcoin's price rises whenever there is a halving since the halving increases the production cost of miners, which is usually considered the lower limit of the price of Bitcoin.
Strategists at JPMorgan Chase say the average production cost of Bitcoin is currently $26,500, theoretically doubling to $53,000 after the halving.
Analysts believe that with the increase in mining difficulty, small miners are expected to be forced to cease operations. For the remaining miners, this could make the mining difficulty 20% lower than originally estimated, thereby lowering production costs.
JPMorgan strategists wrote in the report that with the lower support level for Bitcoin, investors might see Bitcoin's price fall back to $42,000 after the halving in April, which means a drop of over 30% from the current Bitcoin price (around $62,000).
JPMorgan's forecast is based on two key assumptions: Firstly, after the halving, the power cost of miners is estimated to average 5 cents per kilowatt-hour, which may vary depending on location and scale.
Secondly, as Bitcoin mining becomes more energy-intensive after the halving, some less efficient miners with less capital are expected to exit the market as their production costs exceed the market price, causing the hash rate (which measures the mining capacity of the industry) to drop by about 20%.
However, if Bitcoin's price remains high, the decline in hash rate may not become a reality. As more and more people are buying Bitcoin through new spot Bitcoin ETFs, the rise in Bitcoin's price might keep smaller miners profitable even after the halving in April, making JP Morgan's predicted scenario unlikely to materialize.