Bitcoin's intrinsic value has actually doubled after halving

[Hugo Barbosa]

According to JPMorgan Chase, Bitcoin effectively priced the daily energy consumption by 25%.

JPMorgan regards bitcoin as a commodity because bitcoin mining requires electricity. The company said that bitcoin miners responded quickly to a sharp decline in revenue after halving revenue.

Nikolaos Panigirtzoglou, the bank’s managing director, wrote that after halving the bitcoin network block reward to 6.25 bitcoins, people found that “the intrinsic value estimate actually doubled Something. "

In principle, if the market price of Bitcoin is higher than its intrinsic cost, it should cause miners to increase the resources for mining Bitcoin, thereby increasing the mining cost until the marginal cost is close to the market price.

On the contrary, if the price is lower than the intrinsic cost, the high-cost producer must withdraw from the market and reduce the total cost until it approaches the marginal cost again.

The intrinsic value of Bitcoin price

In order to find the intrinsic value of bitcoin, calculate the daily production cost of bitcoin as a function of computing power, electricity cost and hardware energy efficiency, and then divide by the expected daily output of bitcoin.

Since the halving, the hash rate has dropped by 20%. The last time this drop occurred was when the price of Bitcoin plummeted by 50%. This decline also occurred in the context of "improving the average efficiency of mining equipment, because energy consumption per GH / s has dropped by more than 15%."

As shown in the figure above, the chart from JPMorgan Chase shows the chart of the Bitcoin market price and intrinsic value chart, which uses Hayes (2018) 's production cost method to estimate the intrinsic value. , And the current situation narrows the gap between intrinsic value and market prices.

Background of futures market positioning

J.P. Morgan Strategic Analyst Nicolaus Panigirzoglu also mentioned the significant increase in the open interest of Bitcoin futures and options.

In terms of the Chicago Mercantile Exchange (CME) bitcoin futures contract, it is recovering faster than cryptocurrency exchanges, and the amount of bitcoin and cash has both increased "swiftly". Although CME's open position (OI) has surpassed LedgerX, it still lags far behind Deribit's nearly $ 1 billion OI.

As for bitcoin futures positions, JPMorgan Chase multiplied the absolute value of weekly holdings by the data of weekly futures price changes. The basic principle behind price increases is that the specifier ’s net long position and increase in investors and vice versa.

The above chart is a bitcoin position proxy chart based on Bitmex permanent swaps and open positions of CME bitcoin futures contracts.

This year, the trends of the Chicago Mercantile Exchange and BitMEX futures are similar in direction. "In the March sell-off, net longs were cut or net shorts increased significantly. Before the halving event, net longs or net shorts increased or decreased significantly.

However, the JPMorgan Chase report did not mention the decline in BitMEX's market share and network traffic by more than 40%.

[Hugo Barbosa]

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