JPMorgan has caused a stir amongst cryptocurrency miners, after last month’s report estimating Bitcoin’s ‘fair value’ at $2400. This assessment derives from the marginal cost of producing Bitcoin, but some disagree with Chinese miners’ production cost estimations.
The Price Of Dystopia
In the report, JPMorgan analysts claimed that the “average cash cost of a low-cost Chinese miner was around US$2,400 per bitcoin” in Q4 2018.
This, they suggested, is the break-even point; the marginal cost of producing one bitcoin. With bitcoin currently hovering around the $4000 mark, that represents a price drop of 40% before achieving ‘fair value’.
This actually seemed like progress from the previous day, when a JPMorgan analyst claimed bitcoin only had value in a dystopian environment. Unless the suggestion is that we are already living in a dystopian environment?
The Fallacy Of Metrics
Anyway, miners argued that the design of Bitcoin means that the very concept of an average ‘marginal cost’ was flawed. Ben Gagnon, co-founder of mining hardware developer, LuTech explained that there could be no ‘average cost’ or ‘break-even point’.
With a finite supply of around 1800 bitcoin per day, a miner can only get a bigger share of that relative to other miners. As Gagnon says:
…there will always be miners seeking to create blocks and get bitcoin rewards so long as they can operate with power-efficient hardware at low electricity cost… When bitcoin price falls, the cost of mining a bitcoin will also fall, as miners with more expensive operations will be the one to exit the market first. This leaves room for more market share and profitability to lower-cost miners
Valuation Motivation
Perhaps JPMorgan are unhappy with the statistic that they hold 200 times more customer deposit value than the top five cryptocurrency exchanges combined?
A bitcoin price of $2400 would increase this to over 300 times the value, even if the exchanges holdings were spread evenly across all available tokens. The fact that the majority of tokens held by the exchanges are bitcoin, would make this gap even wider.
And one wonders how JPMorgan would value its own recently unveiled JPM coin? Presumably centralised, it would not require mining, therefore the ‘marginal cost’ of production per coin would be…
Zero?
Do you agree with JPMorgan’s valuation of bitcoin? Share your thoughts below!
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