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JPMorgan: Bitcoin Surged Beyond Its Intrinsic Value, Mirrors 2017 Boom-Bust Pattern

Bitcoin has been unstoppable in recent weeks. The digital currency continued its recovery after a horrid few months, hitting a 2019 high of $8,350. This was after the currency had traded below $4,000 just a month earlier. While many believe that the price is finally catching up to the developments in the field, U.S’ largest bank isn’t as enthusiastic.

According to JPMorgan, bitcoin may have gotten ahead of itself with its recent rally. In a note to investors, some of the bank’s analysts suggested that the currency had surged beyond its intrinsic value. This, they believe, is a similar situation to the 2017 price rise which preceded a devastating slump.

The analysts wrote:

Over the past few days, the actual price has moved sharply over marginal cost. This divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time this divergence was resolved mostly by a reduction in actual prices.

A report by Bloomberg revealed that the analysts treated bitcoin as a commodity in their analysis. They then calculated its cost of production using inputs including hardware energy efficiency, electricity expense, and estimated computational power.

A Lot Has Changed, JP

And while the analysts believe that the current momentum is similar to 2017, there are a few distinguishing factors. One of these is the low amount of money initial coin offerings have raised. In 2017, one of the major factors that led to high prices was the huge number of ICOs. These ICOs raised money through bitcoin and ether. Therefore, many investors bought into the two currencies so that they could invest in ICOs. The high demand for the two currencies pushed their prices up.

In the first quarter of 2019, ICOs raised just $118 million according to the Wall Street Journal. This is over 58 times less than the amount they raised in a similar period in 2018 which stood at $6.9 billion.

Yet another significant change is the entry of global giants, including Wall Street firms. Facebook is at an advanced stage in the development of its cryptocurrency according to reports. The social media giant, which has over 2.5 billion users, has been on a hiring spree in recent months for its crypto department.

Other giants include Fidelity which has been steadily onboarding clients on its platform. Its crypto trading desk is set to launch soon according to a report by Bloomberg. JPMorgan launched its cryptocurrency as well after bashing the industry for years. The Intercontinetal Exchange, the parent company of the NYSE is set to launch its Bakkt platform this year. Whole Foods, Starbucks, Nordstrom, Barnes & Noble and a host of other retailers are also accepting BTC.

These are just a few of the significant changes since the 2017 bull run.

What Really Is Bitcoin’s Intrinsic Value?

Despite being over a decade old, we are yet to agree on what bitcoin’s intrinsic value is. The note from JPMorgan agreed as much saying:

Defining an intrinsic or fair value for any cryptocurrency is clearly challenging. Indeed, views range from some researchers arguing that it has no fundamental value, to others estimating fair values well in excess of current prices.



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