JP Morgan sees bitcoin fall to $42,000 after April halving

Despite the surge in the price of bitcoin, the American bank believes that the “halving” will reshuffle the cards for the bitcoin mining industry… to the detriment of the price of the queen of cryptocurrencies.

The cryptocurrency market has had a crazy week, with bitcoin exceeding the symbolic threshold of $60,000 and stabilizing this Friday around $62,000. In one week, bitcoin gained more than 20%, including 45% over one month. Some analysts are starting to talk about the return of a bullish phase in the crypto market, also called a “bull market”.

But such a significant and rapid increase could also be followed by a severe correction phase. It is in this context that JP Morgan analysts estimate that the price of bitcoin could fall to $42,000 after the bitcoin halving, scheduled for April 19. As a reminder, this event consists of the halving, every 4 years, of the number of new bitcoins put into circulation on the market (as rewards to miners who validate transactions).

Indeed, by adding a new block, miners are rewarded in bitcoin. This reward is halved every four years according to the halving principle, defined from the start in the bitcoin white paper. To date, this reward is 6.25 bitcoins per validated block, compared to 3.125 bitcoins at the next halving. To finance their activity, miners must put the bitcoins they have acquired into circulation on the market. From April, they will put fewer into circulation.

Production cost

This reduction “will have a negative impact on the profitability of miners and will lead to an increase in bitcoin production costs,” underlines the note consulted by the specialized media The Block. JP Morgan anticipates a bitcoin production cost of $53,000 after the halving, with the possibility of “a 20% drop in the hashrate of the Bitcoin network after the halving”, in the face of the disappearance of small mining companies due to lower profitability.

“This would therefore lower the midpoint of the estimated production cost range to $42,000, based on an average electricity cost of $0.05/kWh,” it reads.

The next halving could lead to a reshuffling of the cards in the mining industry, with big players and smaller ones disappearing, creating a greater concentration of the mining industry.

Contrary to JP Morgan’s short-term predictions, over the past three halvings, a reduction in the available supply of new bitcoins caused the asset’s value to increase in the months leading up to the event. For example, during the last halving of 2020, 1,314,000 bitcoins were put into circulation over 4 years. There will be no more than 657,000 bitcoins for the next 4 years starting in April. Since May 2020, the price of bitcoin has increased by over 560%.