Bitcoin’s price, above $63,000 on Thursday, reached levels not seen in two years, but the coin’s upcoming halving could push prices as high as $42,000, according to analysts at JPMorgan.
“The cost of producing bitcoin has acted empirically as a lower bound for bitcoin prices,” analysts wrote in a report released Wednesday, estimating that post-halving production costs could double to about $53,000. This could cause a 20% drop in the Bitcoin network’s hashrate, meaning fewer miners would compete to produce Bitcoin at the same time.
“This $42,000 estimate is also the level we expect bitcoin prices to move towards once the bitcoin halving-induced euphoria fades after April,” the analysts wrote.
At the halving, expected around April 19, the rewards miners earn per block will drop from 6.25 to 3.125 Bitcoin, in order to slow the rate at which new coins are minted. While decreasing supply has historically caused prices to spike, rising production costs can also affect the price of Bitcoin as fewer miners are able to remain profitable.
“There may also be some horizontal integration via mergers and acquisitions among bitcoin miners across regions to exploit synergies in their businesses,” JPMorgan analysts concluded, noting that the hashrate share of publicly traded miners is likely to increase .
Bitcoin neared its all-time high of around $69,000, a move that exhausted cryptocurrency providers such as Coinbase, which suffered outages due to increased app and site traffic. But JPMorgan’s bearish forecast could undermine optimism about the longevity of this upward trajectory.
“We expect consolidation,” said Fred Thiel, CEO of the world’s largest publicly traded miner, Marathon Digital Holdings. Fortune. About 10%-25% of miners, probably smaller players, will eventually go offline, he adds. However, Thiel expects some will return once costs are optimized.
Exactly how much harm the increased production costs will be to miners is also inextricably linked to the price of Bitcoin, but “even if the price of the reward drops by 50%, if the price of Bitcoin goes to $100,000, they will still make money the same amount of money” after a couple of months after the halving,” said Alessandro Cecere, marketing manager of the Luxor mining pool.
In fact, after the three previous halvings of 2008, 2012 and 2016, the hashrate temporarily dropped before rising again.
But like JPMorgan, Galaxy CEO Mike Novogratz also sees some bearish signs, at least in the short to medium term, telling Bloomberg TV on Thursday: “I would say we’re at very frothy levels.”
“I wouldn’t be surprised to see some corrections and some consolidation,” he added during the interview. “If it corrects, it could reach the mid-$50,000s before taking off to a new high.”