JP Morgan Analyst: Bitcoin (BTC) Trading Above Intrinsic Value
Analysts at Wall Street investment bank J.P. Morgan Chase believe that the price of Bitcoin has soared above its intrinsic value throughout 2019’s rally.
According to new details emerging from the banking giant, JPM strategists are claiming that Bitcoin is trading above what they consider to be the digital assets intrinsic value, giving investors some pause as to whether the market will heed such a metric. Similar to the argument for gold and precious metals, Bitcoin and cryptocurrency has struggled with the tug-of-war concept over what constitutes ‘intrinsic value.’ For the folks on Wall Street–regardless of continued price movement–the price of BTC has seemingly outstripped what it offers in terms of industry value.
Bloomberg was the first to report the JPM news on May 20, making the claim that BTC is possibly entering a similar period of trading that accompanied the bullish rally to end 2017. Similar to current market conditions, the JPM analysts found BTC to have surged well beyond its intrinsic value by the time the price began to collapse in December 2017.
According to JPM strategist Nikolaos Panigirtzoglou in a note to investors on May 17, Bitcoin should be considered as a commodity, thereby allowing cost of production calculations using the estimates of mining electricity and hardware costs as a factor in valuation.
“Over the past few days, the actual price has moved sharply over marginal cost. This divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time this divergence was resolved mostly by a reduction in actual prices.”
Despite pounding the table over Bitcoin exceeding its calculated intrinsic worth, the strategists at JPM caution that valuation can be a subjective quality, particularly through the lens of retail investors and market behavior.
“Defining an intrinsic or fair value for any cryptocurrency is clearly challenging. Indeed, views range from some researchers arguing that it has no fundamental value, to others estimating fair values well in excess of current prices.”
Previous years would have brought about investor skepticism towards the views of JP Morgan Chase in relation to cryptocurrency, given CEO Jamie Dimon’s acerbic comments towards Bitcoin. However, the investment bank has had a change of heart in the industry of cryptocurrency digital assets, with the development of the JPM Coin. While the currency is likely to be a private blockchain contained to the in-house banking network and clientele, it stands as a vote of confidence for both Bitcoin and the broader crypto markets that Wall Street is willing to hedge its bets in the technology.
After reaching as high as $8250 in the early morning hours of Asian trading, the price of BTC has slipped below $8k on May 20. As of writing, Bitcoin is hovering around $7700, with sellers starting the trading week by forcing the currency into a correction following the weekend rally. Fundstrat’s Tom Lee previously listed thirteen reasons why the crypto winter is over, giving his belief that the markets are entering a bullish phase even in light of last week’s price correction.