Will Bitcoin’s Halving Event Lead to a Price Drop?
One of the most anticipated catalysts for further gains in Bitcoin may end up sending the price of the largest cryptocurrency lower, according to JPMorgan analysts.
A Bitcoin code update in April called “the halving” that will reduce the amount of tokens issued daily by half to about 450 is being cited by advocates as leading to a supply shortage. Bitcoin has jumped about 45% this year to around $62,000, with demand surging from exchange-traded funds approved in January.
The Historical Impact of Halving Events
The price of Bitcoin has historically increased after a halving event, with so-called miner production cost functioning as a lower bound to the price of the asset. Average Bitcoin production cost currently sits at $26,500 per Bitcoin which would “mechanically double” post-halving to $53,000, according to strategist at JPMorgan Chase & Co.
However, as increased mining difficulty pushes smaller miners out of operation, mining difficulty could be 20% lower than originally estimated, bringing down production costs. With less support in the lower bound, investors may see Bitcoin’s price drifting back toward $42,000 after April, the strategists wrote Thursday.
The Key Assumptions
Strategist estimates are based on two key assumptions:
- Post-halving electricity cost for miners is estimated at an average of 5 cents per kilowatt hour, which can vary depending on location and scale.
- As mining Bitcoin becomes more energy intensive after April, some private miners with less-efficient fleets of machines and little access to capital will drop out of the market as their production cost exceeds profitability, bringing down the hashrate — a measure of the total mining capacity of the industry — an estimated 20%.
“This 20% drop would bring the hashrate closer to its historical trend,” the strategists wrote. “This would effectively cut the central point of our estimated production cost range to $42k. This $42k estimate is also the level we envisage Bitcoin prices drifting towards once Bitcoin-halving-induced euphoria subsides after April.”
Still, if the price of Bitcoin remains elevated, the estimated drop in hashrate may not materialize. After publicly-traded miners gained an increased market share in 2022, rising Bitcoin prices the following year drew smaller miners back into the industry as less efficient fleets once again became profitable.
The Role of ETFs and Rising Prices
As expanding access to Bitcoin through the new spot Bitcoin ETFs continues to draw in new investors, rising prices could keep smaller miners profitable even after April’s supply-cut.
🔥 Hot Take: Will Bitcoin’s Halving Event Impact Its Price? 🔥
The upcoming halving event in April could potentially affect Bitcoin’s price, according to JPMorgan analysts. While halving events have historically led to price increases for Bitcoin, there are factors that may cause a drop in price this time around. Here are some key points to consider:
The Supply Shortage Argument
- The halving event will reduce the amount of tokens issued daily by half.
- This reduction in supply is being cited as a catalyst for a potential supply shortage.
The Lower Bound and Production Costs
- Historically, miner production cost has served as a lower bound for Bitcoin’s price.
- Currently, the average Bitcoin production cost is $26,500 per Bitcoin.
- After the halving event, this production cost is expected to double to $53,000.
Potential Decrease in Mining Difficulty
- Increased mining difficulty may push smaller miners out of operation.
- This could result in a 20% lower mining difficulty than originally estimated.
- With lower production costs, Bitcoin’s price may drift back towards $42,000 after April.
Key Assumptions and Factors
- The estimates are based on assumptions regarding post-halving electricity cost and the impact of increased energy intensity in mining Bitcoin.
- If the price of Bitcoin remains high, the estimated drop in hashrate may not occur.
- Rising prices and access to Bitcoin through ETFs may keep smaller miners profitable even after the supply-cut in April.
Overall, while there is potential for a drop in Bitcoin’s price after the halving event, various factors such as rising prices and market dynamics could counteract this effect. It will be interesting to see how the market responds to this anticipated event and whether it aligns with historical trends or presents new opportunities for investors.
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