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JPMorgan puts current fair value of Bitcoin at $38,000

By Kevin Donovan

16:52, 9 February 2022

Bitcoin on a string
Value of Bitcoin is $38,000, 13% below current price - Photo: Shutterstock

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.

DOGE/USD

0.16 Price
+6.150% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

BCH/USD

505.05 Price
+4.180% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

XRP/USD

0.54 Price
+4.370% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

BTC/USD

69,687.95 Price
+5.050% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

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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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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