Bitcoin has been on a strong rise recently: it has risen by about 45% so far this year, and even surpassed $64000 on Thursday, approaching its previous high of $69000 on November 8, 2021.
In addition to the surge in demand brought about by the Bitcoin ETF approved by the US Securities and Exchange Commission in January this year, halving is also one of the reasons driving the rise of Bitcoin: in April of this year, the once every four years halving of Bitcoin is approaching. In history, halving often led to an upward trend in Bitcoin, as this event theoretically led to a shortage of Bitcoin supply.
However, JPMorgan analysts predict that after this year's halving, the Bitcoin mining industry is expected to further integrate, resulting in a decrease of about 20% in the computing power of the Bitcoin network. This may ultimately lower the price of Bitcoin.
After halving, Bitcoin mining costs increase
From a historical perspective, the price of Bitcoin has risen every time it is halved, as halving increases the production costs of miners, which is often considered the lower limit of Bitcoin prices.
The strategist at JPMorgan Chase stated that the average production cost of Bitcoin is currently $26500, and theoretically, after "halving", the production cost will "mechanically double" to $53000.
Xiaomo analysts believe that as mining difficulty increases, small miners are expected to be forced to stop operations. For the remaining miners, this will make the mining difficulty possibly 20% lower than initially estimated, thereby reducing production costs.
Small Mo strategists wrote in their report that due to the lower support level of Bitcoin, investors may see Bitcoin prices fall back to $42000 after the "halving" in April, which means a drop of over 30% compared to the current Bitcoin price (around $62000).
Xiao Mo's imagined scenario may not come true either?
The prediction of Xiaomo Strategist is based on two key assumptions:
Firstly, after halving, the estimated average electricity cost for miners is 5 cents per kilowatt hour, which may vary depending on location and scale. Secondly, as Bitcoin mining becomes more energy intensive after being halved, some inefficient and financially strapped private miners will exit the market because their production costs exceed market prices, which will result in a decrease of approximately 20% in the hash rate (which measures the industry's mining capacity).
"This 20% decline will bring computing power closer to historical trends," strategists wrote, "effectively reducing the central point of our estimated production cost range to $42000. This $42000 estimate is also what we envisioned, and once the optimism sparked by Bitcoin's' halving 'subsides after April, Bitcoin prices will move towards the level they were expected to."
However, if the price of Bitcoin remains high, a decrease in hash values may not become a reality. As more and more people purchase Bitcoin through new spot Bitcoin ETFs, the rise in Bitcoin prices may allow smaller miners to maintain profitability even after "halving" in April, so the scenario envisioned by JPMorgan Chase will not be realized.