Gold Prices Imply a Bitcoin Price of $45,000. But There’s a Big If.
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All else being equal, next year’s “halving” event would double the cost of mining one Bitcoin to about $40,000.
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Bitcoin
‘s price has drifted downward for the better part of May, but if gold’s recent level is any indication, the token should be trading higher, J.P. Morgan strategists said in a note on Wednesday.
Some investors view Bitcoin and gold as interchangeable. Both supposedly act as stores of value and inflation hedges—though the token’s actual performance on those fronts has been wanting. Lately, while some retail investors have bought up the cryptocurrency, institutional investors for the most part have stuck with the metal.
Even taking that preference into account, gold’s current price, at just under $2,000 an ounce, implies a price for Bitcoin of $45,000, significantly higher than its current level of about $26,200, assuming investors see them as interchangeable. Of course, Bitcoin has only been used as a store of value for 14 years, while gold has been used for thousands, making that premise a bit precarious.
Another potential support to Bitcoin’s price could come from the so-called halving event that the token is likely to undergo next April or May. Bitcoin “miners” earn tokens for processing transactions and securing the Bitcoin network, but the amount of crypto they earn falls by half roughly every four years.
All else being equal, the halving would double the cost of mining one Bitcoin to about $40,000. In the past, the production cost has acted as a lower bound for token prices, the analysts wrote.
None of this means the bank’s strategists are high on digital assets. In the short term, Bitcoin and other tokens are facing serious regulatory backlash that’s making it more difficult for institutions to hold the tokens and for the crypto industry to grow. The failure of crypto trading platform FTX put an exclamation point on a 12-month period in which Bitcoin prices fell by more than half, and most investors that dabbled in tokens in the past couple of years are sitting on losses.
“The headwinds from the U.S. regulatory crackdown, the unsettling of banking networks for the crypto ecosystem and the reverberations from last year’s FTX collapse are likely to constrain any potential upside,” the analysts wrote.
Write to Joe Light at joe.light@barrons.com