JPMorgan analysts have indicated that the immediate trajectory of Bitcoin’s price is now less influenced by miner activity and more significantly by the financial stability of Strategy, the world’s largest corporate Bitcoin holder. This assessment comes amidst persistent mining pressures and market volatility.
In a recent report led by managing director Nikolaos Panigirtzoglou, the bank outlined two primary factors impacting Bitcoin: a noticeable drop in the network’s hashrate and mining difficulty, coupled with an increasing focus on Strategy’s financial health. The bank noted that this shift in focus is largely due to concerns about Strategy’s ability to withstand market downturns without liquidating its substantial Bitcoin holdings.
The reduction in Bitcoin’s hashrate is attributed to multiple factors, including China’s reaffirmation of its ban on private mining, alongside high-cost miners outside the nation retreating in response to declining Bitcoin prices and rising energy costs. JPMorgan now estimates the production cost of Bitcoin to be around $90,000, down from $94,000 the previous month. This estimate accounts for electricity costs at $0.05 per kilowatt-hour, suggesting that an increase of $0.01 would add approximately $18,000 to the production costs for more expensive miners.
With Bitcoin trading close to $92,000, it remains near its estimated production cost, contributing to ongoing selling pressure from miners. As profit margins dwindle, high-cost miners have been selling off their Bitcoin holdings to maintain solvency.
Despite the ongoing challenges faced by miners, JPMorgan emphasizes that they are no longer the primary influencers of Bitcoin’s imminent price movements. The focus has shifted to Strategy’s capacity to hold its Bitcoin without resorting to sales. Currently, Strategy’s enterprise-value-to-Bitcoin-holdings ratio stands at 1.13, indicating that the market value of its combined debt and equity is exceeding the value of its Bitcoin treasury. This ratio remains above 1.0, which JPMorgan finds encouraging, suggesting Strategy will not feel pressured to sell Bitcoin to meet its financial obligations.
Recently, Strategy bolstered its financial position by establishing a $1.44 billion cash reserve intended to cover dividend payments and interest for a minimum of 12 months, with a target of extending that coverage to up to 24 months. This significant reserve aims to mitigate the risk of forced Bitcoin sales in the near future.
However, as Strategy’s Bitcoin acquisitions have tapered off recently, the company remains highly susceptible to price fluctuations. In November alone, Strategy acquired 8,178 BTC, marking its largest purchase since July, raising its total holdings to approximately 650,000 BTC. Currently, its market capitalization is around $54 billion, with an enterprise value nearing $69 billion.
Market participants are also closely monitoring an impending decision by MSCI regarding the potential removal of Strategy and other digital-asset treasury firms from its equity indices. JPMorgan assesses that the implications of such an exclusion are largely priced in at this stage. Since MSCI commenced its review in October, Strategy’s share price has witnessed a decline of about 40%, underperforming Bitcoin by an estimated $18 billion in market value. Should MSCI decide to exclude Strategy, JPMorgan estimates there could be passive outflows of $2.8 billion, with total potential risk reaching up to $8.8 billion if other indices follow suit. Nonetheless, the bank believes that further downside risk may be limited.
On the positive side, should MSCI maintain Strategy in its indices, both Strategy and Bitcoin could experience significant rebounds, returning to pre-October valuation levels. Beyond corporate strategies, JPMorgan maintains that the broader structure of the cryptocurrency market may offer long-term optimistic trends. Continuous perpetual futures deleveraging suggests that previous record liquidations are largely resolved, while Bitcoin’s volatility ratio against gold has improved, enhancing its risk-adjusted attractiveness to investors.
In its analysis, JPMorgan reiterated a long-term valuation comparison between Bitcoin and gold, positing a theoretical Bitcoin price of approximately $170,000 within the next six to twelve months, predicated on stabilizing market conditions. Currently, Bitcoin is trading about $68,000 below this projected level.
