JPMorgan puts current fair value of Bitcoin at $38,000
16:52, 9 February 2022
JPMorgan Securities researchers peg the current fair value of Bitcoin at $38,000, or 13% below today’s $44,000 price, when accounting for the current historically high volatility.
The $38,000 price is based on theoretical $150,000 benchmark Bitcoin price when factoring in the current four to five times volatility ratio versus gold prices. “Our fair value for Bitcoin based on a volatility ratio of Bitcoin to gold…would be (one-fourth) of $150,000 or $38,000,” researchers led by Nikolaos Panigirtzoglou.
Bitcoin is currently trading at $43,893, down from the $44.427.95 24-hour high price, according to data maintained by Coindesk.
Previous expectations of lower price volatility are now unrealistic and JPMorgan puts the best-case upside for Bitcoin at $50,000, assuming a slight, three times, reduction in the volatility ratio between the two assets. The heightened volatility retards more widespread institutional adoption of Bitcoin, and digital assets in general.
Volatility a challenge
“The biggest challenge for Bitcoin going forward is its volatility and the boom and bust cycles that hinder further institutional adoption,” JPMorgan said. As a result, JPMorgan sees continued headwinds for both Bitcoin and Ethereum going forward.
The theoretical $150,000 benchmark bitcoin price assumes “a convergence of Bitcoin volatility to that of gold and an equalisation of Bitcoin to that of gold in investor portfolios,” JPMorgan added.
Based on this formula, and assuming a three times volatility ratio between gold and Bitcoin prices, JPMorgan caps the near-term price upside for Bitcoin at $50,000.
Driving the recent volatility is the unwinding of leveraged future positions, similar to that seen last May, JPMorgan adds. The current volatility, however, is less severe and abrupt than that seen last May.
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Digital asset expansion
The current correction points to a “more long-standing and thus more worrisome position reduction trend that had started last November and continued last month, alongside with the downshifting of technology stocks.”
The futures position unwinding comes from, in part, from momentum traders, such as cryptocurrency quant funds. “(T)here were signs of capitulation by momentum traders towards the end of January, something that could have provided some near-term relief, as those momentum traders exit extreme short positions.”
While, as an emerging asset class, JPMorgan sees digital assets “on a multi-year structural uptrend,” future growth may not come from price appreciation but rather from the expansion of the digital asset universe.
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