Key Insights:
JP Morgan thinks the rebound in Bitcoin's price could be temporary.
A report by the financial giant cites overvalued Bitcoin prices as the main reason, followed by Mt Gox Bitcoin transfers.
Mt Gox users had witnessed at least 23,333% growth in their holdings since its hack in 2014 when it lost 950k Bitcoins.
Bitcoin had a phenomenal recovery rally from $53,900 to $67,600 after the German government-led sell-off triggered one of the worst market corrections in recent times.
The German government had $3 billion worth of Bitcoin, which it sold in its entirety. These Bitcoins were recovered from various seizures. Due to the lack of available liquidity in the markets, the sell-off triggered a correction to $53.9k.
However, a report by JP Morgan shows that Bitcoin might experience an even more significant sell-off caused by its overpriced value and triggered by Mt Gox users.
Mt. Gox was hacked in 2014, leading to a loss of around 950k Bitcoins (priced roughly at $300 to $350). Lately, after 200k BTC were recovered, the exchange has announced a plan to compensate the users with approximately 90,000 Bitcoins from its recovered stash.
According to a report by JP Morgan, Bitcoin was overpriced compared to gold and its mining price. The report adjusted the price of Bitcoin for inflation and found it should be around $53,000. The report also states that Bitcoin's average mining cost was around $47,000, which is much less than its current value of $67,600.
However, the arguments in the report might not have considered the full picture before putting Bitcoin under the "overpriced" tag. We believe so because of the following reasons.
Firstly, Bitcoin's mining cost has no impact on its price. Mining cost, or, as the report says, "production cost," could be higher or lower than Bitcoin's price. The latter is completely dependent on the forces of supply and demand.
The second argument that Bitcoin is overpriced compared to gold is a bit odd since both assets are decoupled. Further, gold and Bitcoins do not fit into the same asset class. Conservative investors typically buy gold, while aggressive investors buy Bitcoin.
Despite all, the Mt Gox transfers pose a severe challenge to the price of Bitcoin in the near future. Mt Gox aims to compensate its users with around 90,000 Bitcoins valued at $6 billion. If the users decide to sell their Bitcoins, it might result in a more significant crash than the one initiated by the German government.
When Mt Gox was hacked in 2014, Bitcoin was worth $300-$350. At press time in 2024, when the recovered Bitcoins are scheduled to be released to Mt Gox users, they are worth $67,600. The difference in values tempts almost all users to sell their Bitcoins.
Despite the ETF inflows, such a massive sell-off could trigger widespread panic and chaos, causing a further sell-off.
At press time, Bitcoin was trading near $67,600, up 6% in the last seven days.
Bitcoin's support levels are $62,500, $58,000, and $53,900k. On the upside, the resistances lie at $70,000 and $73,700.
If Bitcoin experiences a more significant crash, we expect its prices to drop to $45,000.
At press time, Bitcoin had a price of $67,670 and a strong momentum with a high RSI of 63. The daily charts show that the price made a v-shape recovery. However, a red engulfing candle on 22 July showed near-term bearishness.
Further, in the crypto markets, a sell-off could trigger a wide liquidation as Bitcoin Futures currently have the highest open interest of $36 billion on 22 July 2024. Such liquidations result in a further crash. We expect Bitcoin to drop to $45,000 or even lower if such an event occurs.
These factors, together, paint a grim picture of Bitcoin, at least in the near term.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information but will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.