Key Factors Affecting Bitcoin's Price
JPMorgan analysts have identified Strategy's financial resilience as the primary driver of Bitcoin's near-term direction, indicating that this factor carries more weight than miner activity. The firm's ability to avoid selling its Bitcoin holdings is considered more significant than declines in hash rate or changes in mining difficulty.
Managing director Nikolaos Panigirtzoglou led the team of analysts who highlighted two key pressure points on Bitcoin's price in a recent report. These pressures stem from recent declines in the Bitcoin network hash rate and mining difficulty, alongside market attention focused on developments concerning Strategy's balance sheet.
Impact of Mining Dynamics and Production Costs
The decrease in hash rate and difficulty reflects China's renewed ban on mining activities following a surge in private operations, as well as the withdrawal of high-cost miners outside of China. These miners are facing squeezed profits due to falling prices and rising energy costs. Bitcoin's price continues to trade below its estimated production cost, creating sell pressure on the cryptocurrency.
JPMorgan's latest estimate places Bitcoin's production cost at $90,000, a decrease from $94,000 in the previous month. This estimate is based on an assumed electricity cost of $0.05 per kilowatt-hour. For higher-cost producers, each $0.01 increase in electricity cost raises the production cost by $18,000.
In recent weeks, high-cost miners have been compelled to sell Bitcoin as their profits diminished due to elevated electricity expenses and lower market prices. Strategy's enterprise-value-to-Bitcoin-holdings ratio currently stands at 1.13, having experienced a sharp decline in the latter half of the current year.
Strategy's Financial Position and Market Reassurance
The analysts noted that the ratio remaining above 1.0 is an encouraging sign, suggesting that Strategy is unlikely to face pressure to sell Bitcoin to meet dividend or interest obligations. The report indicated that markets would likely find reassurance if this ratio maintains its position above 1.0 and Strategy refrains from selling its Bitcoin holdings.
Strategy has established a U.S. dollar reserve of $1.44 billion, which is sufficient to cover two years of dividend and interest payments. This substantial reserve significantly reduces the probability of forced Bitcoin sales in the foreseeable future, thereby contributing to the stabilization of the cryptocurrency's outlook.
Bitcoin Accumulation and MSCI Index Considerations
While Strategy has recently moderated its pace of Bitcoin accumulation, the firm continues to expand its treasury holdings. Strategy announced this week that its Bitcoin stockpile has surpassed 650,000 coins. Market participants are closely observing whether MSCI will remove Strategy and other companies holding digital assets in their treasuries from equity indices. JPMorgan suggested that the impact of such a removal would likely be asymmetric.
Analysts believe that the risk of exclusion from MSCI indices appears to have already been priced into Strategy's share price. Strategy's stock value has fallen by 40% as of December 2nd since MSCI announced its consultation on October 10th, underperforming Bitcoin by 20%, which translates to approximately $18 billion in market value. Should MSCI decide to retain Strategy within its indices, both the company's stock and Bitcoin are anticipated to experience a strong rebound, potentially returning to pre-October 10th levels.
Long-Term Outlook and Theoretical Price Potential
JPMorgan reiterated its positive outlook on Bitcoin's longer-term upside potential. Their analysis, which compares Bitcoin to gold on a volatility-adjusted basis, suggests a theoretical Bitcoin price close to $170,000. This projection indicates significant appreciation potential over the next six to 12 months, contingent upon market conditions stabilizing. Bitcoin is currently trading around $91,340.