On Friday, another round of turmoil hit the crypto market as Bitcoin (BTC) fell to the $88,000 price range, which was a sharp decline of 4%, bringing the total decline to approximately 24 hours. This price drop puts Bitcoin at almost its lowest price in the past week ($88,091), and has heightened fears among investors who are already shaken from the massive liquidation event that took place on “October 10”. The sell-off has reduced the market cap for Bitcoin down to $1.77 trillion. Although Bitcoin has experienced such a large price decrease, JPMorgan Chase, a financial institution based in New York City, has continued to remain optimistic about the future of Bitcoin and re-affirmed its target for Bitcoin price at $170,000 over the next 6-12 months based on a “long-term” price target and a fundamental valuation model that indicates current overselling.
The Gold Standard: Why $170,000?
The way the forecasts of JPMorgan are formed is primarily through their Specific Valuation Framework, known as the Volatility Adjusted Gold Equivalent. In essence, this model values Bitcoin’s Market Cap via it’s volatility-adjusted value vs. Gold’s Market Cap in a Private Portfolio.
According to the bank’s strategists, Bitcoin’s recent price compression has made it mathematically attractive relative to gold. The model argues that as Bitcoin’s volatility declines and institutional adoption matures, its allocation in portfolios should rival that of the precious metal. Currently, the bank estimates that for Bitcoin to match gold’s risk-adjusted standing, it would need to nearly double from current levels.
“Strategy” Holds the Line
A central pillar of the market’s current anxiety—and its potential salvation—is Strategy (formerly MicroStrategy), the corporate Bitcoin behemoth led by Michael Saylor. A massive 650,000 BTC is held by the company, making it a representative of BTC’s broader market and making it an indirect proxy for BTC trading on the exchanges. Investors are fixated on the company’s mNAV (Market Net Asset Value) of $9.14, which provides insight into how much more, based on their current assessment of Strategy’s Bitcoin holdings, the public is prepared to pay for their stock.
JPMorgan analysts labeled this ratio “encouraging.” A figure above 1.0x suggests that the market still values the company’s operational business and active treasury management, reducing the likelihood of forced sales. To alleviate any remaining concerns, Strategy has built up a $1.44 Billion reserve in USD that is planned to pay dividends and interest for 24 months. As a “war chest” it provides peace of mind that the company will be able remain solvent during protracted crypto winters without having to liquidate even one Satoshi.
Miners Capitulate as Costs Compress
The corporate treasury maintains its stability, whereas the Mining Company exhibits signs of capitulating. The network hashrate (the complete computing power of the network that secures the blockchain) has fallen sharply because many of the higher-cost miners, particularly non-Chinese producers, are decommissioning their mining rigs and operations because profit margins have decreased.
JPMorgan estimates that the production cost of one Bitcoin has fallen to $90,000, down from $94,000 last month. Theoretically, as production costs fall so does the price at the floor; however, this has an immediate offsetting impact on miners who are struggling to meet payments on their electricity bills by liquidating their product inventory creating ongoing “sell pressure” for sellers.
Exit of Institutional Investors?
In the past six weeks, BlackRock’s iShares Bitcoin Trust, the largest ETF (exchange-traded fund) in the bitcoin space, has lost over $2.8 billion in net assets. The trust has lost most of its value because of negative market sentiment, as well as due to negative traditional investor sentiment towards cryptocurrencies since late 2022 which caused nearly one trillion dollars of losses when the market crashed. Most traditional investors are still assessing the situation before they decide which strategy to pursue when investing in high-risk assets.
The January Catalyst
Looking ahead, all eyes are on January 15, when index provider MSCI will decide on the inclusion of crypto-exposed companies in its global indices.
The decision is binary: a “yes” could force trillions of dollars in passive index funds to buy Strategy stock, triggering a massive rally. A “no” could see the stock—and by extension, Bitcoin—punished further. Strategy’s Michael Saylor recently disputed the methodology of potential exclusion, emphasizing that his firm is an operating company with a $500 million software business, not merely a passive investment fund.
For now, Bitcoin hovers in no-man’s-land at $88,000. But if JPMorgan’s models hold true, this fear-driven discount may be the calm before a $170,000 storm.
