“This analysis is an adaptation from the work of Mati Greenspan, Senior Market Analyst at eToro”
- JP Morgan attempts to value Bitcoin Mining Cost in its latest report
- Fidelity plans a March Launch of Crypto Custody services
- Understanding Crypto Nascency Roadblocks
Wall Street Institutions continue their interests in crypto
Well with Bitcoin ETF now out of the way for a while, direct investment plans of traditional financial institutions may also have gone cold. But the interest in cryptos continues to fuel the fire. JP Morgan recently released the report titled “Blockchain and Cryptocurrencies: Adoption, Performance and Challenges” which speaks about roadblocks to adoption, the recent bear market, scalability issues, and other standard stuff. But the report takes an interesting twist when it tries to calculating bitcoin’s mining costs.
According to JPM’s assessment, it broke down miners into categories and claimed that it is the low-cost miners who set the price floor. Even though there were critics of this method, the JPM assessment looked fine to an extent.
What happens is, mining costs are notoriously difficult to estimate but assuming for argument’s sake these numbers are correct, bitcoin is now below the average mining cost ($4,060). And what the report does indicate is that if the high-cost miners choose to exit, then the low-cost miners will then be competing against each other, which could drive the prices down as far as $1,260. Again, an accurate statement.
The only thing here that JP Morgan fails to take into account is a simple matter of behavioral economics. By their own admission, and included in the graph above, a large number of miners have been operating at a loss for a while now, and hash rates continue to increase even in countries where electricity is more expensive. Therefore, there isn’t much reason to assume that if someone in the Czech Republic, for example, has been mining bitcoin for $8,000 until now, he’ll suddenly abandon his rig if the price drops another $1,000 or $2,000. Certainly, some will be forced out as nobody can operate at a loss indefinitely, but whoever can afford to will likely hang on for as long as they can.
Fidelity moves ahead with its crypto plans
While JP Morgan continues its homework on bitcoin, Fidelity Investments is targeting a March launch date for its Bitcoin custody service, according to three people with knowledge of the matter, as the mutual-fund giant moves forward with a plan that could help ease fears of trading cryptocurrencies. The company, in October 2018, had announced that it would offer a range of crypto products designed for large investors like hedge funds.
Understanding crypto roadblocks
If one goes through the JP Morgan report, crypto still has a lot of roadblocks to achieve widespread adoption. One cannot fail to agree with their assessment that world is very much in the early days of the blockchain revolution and it could certainly take time before the full benefits are realized.
However, as investors, one still needs to take into account that all crypto assets are risky. The simple fact is that we’re dealing with very experimental technology and so things can certainly go wrong along the way. This is why it always pays to diversify your investment portfolio and trade in other assets as well.
One example of the way the tech could go wrong was experienced yesterday in the NEO network when NEO’s network got unintentionally forked. Now, without getting too technical it seems that some people running the NEO blockchain weren’t updating properly, possibly due to poor connections, and the entire network was out of sync. In any case, it seems that everything has been resolved by now and the impact on the price was minimal.
While NEO was one example of Nascenscy, Ethereum might run into a bit of difficulty due to the delay of the Constantinople upgrade. It seems that the “difficulty bomb” that the upgrade was supposed to offset has now kicked in and the block reward has dropped by 25%. On the one hand, less supply coming online could increase the price of Ethereum but it seems the hash rate is dropping at the moment. Not to worry though, Vitalik is currently sitting with some of the top devs at Stanford University campus working on the issue. Session recordings are here.