Bitcoin Roars Toward $9,000 – Here’s Why JP Morgan Says BTC Facing Significant Downside Risk
The launch of Bitcoin options by the CME Group, owner and operator of leading derivatives, options and futures exchanges, appears to be sparking excitement in the crypto market. CME’s Bitcoin futures open interest (OI) started the first four trading days with 5,400 contracts on January 7, up 69% from year-end OI, prompting optimism for BTC options, which, up until this point, has been subdued.
Now Bitcoin’s price is jumping after yesterday’s launch – up 8% in the last 24 hours. Over the past eight days, the price of Bitcoin has surged over 17% from roughly $7,500 to more than $8,824 at time of writing, according to price aggregator CoinMarketCap, after starting the year at $7,191.
Despite Bitcoin’s significant 2019 price decline, it’s still overvalued – that’s according to a group of strategists at JPMorgan led by Nikolaos Panigirtzoglou. The analysis shows that Bitcoin’s intrinsic value is about $5,500, which is what the analysts think it’s really worth.
“The gap has not yet fully closed, suggesting some downside risk remains,” Panigirtzoglou wrote, according to Bloomberg.
JPMorgan calculates intrinsic value by treating Bitcoin as a commodity and looking at the marginal cost of production including computational power employed and cost of electricity. Bitcoin’s intrinsic value has been rising, but remains below market price following a significant divergence in the middle of last year, JPMorgan reports.
Some, however, are more bullish on the currency. Mike McGlone, a senior commodity strategist for Bloomberg Intelligence, expects Bitcoin to appreciate this year due to its fixed supply, increasing adoption and its circulating supply which should increase 2.5% in 2020.
“Bitcoin is winning the adoption race, notably as a store-of-value in an environment that favors independent quasi-currencies.”