The internet is flooded with debates and discussions related to finding the fair value of Bitcoin, the world’s most popular and most expensive cryptocurrency. Every expert has its own formula and methods to justify its own estimation, but there are very few who actually sound convincing. That’s why the world’s largest financial services company JP Morgan & Chase decided to pay a close look at every aspect, and data to put together all pieces related to cryptocurrency in a bid to find the fair value of Bitcoin.
What’s Bitcoin Fair Value?
A team of strategists at JPMorgan Chase $ Co. has concluded that Bitcoin’s fair price is about 11% lower than the current price. This is based on Bitcoin’s volatility in comparison to gold. The team was led by Nikolaos Panigirtzoglou, MD-Global market strategy.
In a Tuesday note, according to Bloomberg, the team wrote that it had calculated the Bitcoin fair value is around $38,000 because Bitcoin is four times more volatile than gold. They estimated that if the volatility differential is only three times, then the fair value would rise to $50,000. As of Friday, February 11, 2022, Bitcoin was trading at $42,300.
The strategists have also identified the biggest obstacle in the growth of Bitcoin in the future. They believe that Bitcoin’s volatility and regular boom-bust cycles hinder institutional adoption.
Panigirtzoglou’s long-term theoretical target for Bitcoin value is $150,000. This is an increase of $146,000 estimated a year ago. He believes that if the price of Bitcoin skyrockets to the said level it touches level it will put its total market value on par with that of all gold held privately for investment purposes.
Despite the recent crash in the price of Bitcoin, the team is optimistic about the long-term future prospects of Bitcoin. One of the main reasons behind such a view is the recent price correction when Bitcoin crashed to as low as $33,500 on January 24, 2022. But the recent crash is less like a capitulation than the one that took place in May last year which saw Bitcoin tank by 50%. They noted that metrics such as futures open interest, reserves on exchanges, and other indicators point to a “long-standing, and therefore more worrying trends in position reduction” that began in November.
Bitcoin Dip: Best Time To Buy?
If the long-term estimation of JPMorgan’s team is accurate, another $100,000 or more would be added to the price of Bitcoin, a nearly 257% increase from the current price.
This is a big boost for all those investors who are banking on Cryptocurrency big time.
The next decade is likely to be crucial for the growth and existence of Bitcoin. The financial industry is experiencing a revolution. But if you keep that aside for a moment, there are a handful of aspects in the Bitcoin ecosystem itself that investors must pay to.
Globally, the debate about cryptocurrency being a value-added store or a means of daily transactions is taking place, both at personal and official galleries. Institutional Investors, who are eager to take dive into it, are divided into two groups as countries like Japan and the United States, have declared it a valid means of payment for items, while India has killed all the possibilities of recognizing it as a currency.
However, issues with security and scaling have stopped forcing people to maintain a distance from it.
“Arguably, the biggest flaws with Bitcoin and other cryptocurrencies over the last few years are related to the security aspect,” said Chakib Bouda the CTO at Rambus, a company that deals in payments.
Bouda refers to the incidents when hackers successfully stole Bitcoins and other cryptocurrencies worth billions of dollars from exchanges. Bouda, however, is optimistic that a secure ecosystem will help Bitcoin and other cryptocurrencies to win the confidence of people, and boost their adoption.
“We anticipate that within 10 years, Bitcoin will become mainstream and will have a completely different image,” he said.
The widespreadization of Bitcoin as a payment method – or in the case of its growing popularity for an investment class – will only happen after significant technological advancements will be done with the Bitcoin ecosystem. Only when Bitcoin’s blockchain would be able to successfully and securely process millions of transactions in a very short period of time it would be considered as a viable investment or as a form of payment. A variety of technologies, including Lightning Network, look promising as it efficiently scales the operation. Many new cryptocurrencies that have emerged due to hard forks on the Bitcoin blockchain, such as Bitcoin Cash and Bitcoin Gold, are aiming to alter the rules of the system in order to enhance the complete ecosystem and process more transactions.
Alongside the improvements in Bitcoin’s blockchain technology, the CTO of Ripple David Schwartz compared Bitcoin to Ford’s Model T in 2018. The automaker announced the beginning of a new era in transportation. An entire ecosystem from highways to gasoline stations was developed to cater to the car. The extensive coverage in the media that has led to the emergence of an ecological system has been established in the last few years.
As the regulatory framework evolves to keep up with the time’s pace of change, it is likely the system will continue to grow. Schwartz believes that the coming decade is going to “bring the explosion of high speed, low-cost transactions which will revolutionize value exchange like the Internet revolutionized the exchange of information.”
After touching the highest mark of $66,900 in November last year, Bitcoin is down 38%, which has made it look quite lucrative for investors.
Analysts at JPMorgan are not the only ones who are estimating the rise in the value of Bitcoin. Citi declared that Bitcoin could soon become the preferred currency to conduct international business. As PayPal (PYPL) and Tesla (TSLA) have revealed that both companies have invested in cryptocurrency early in 2021, investors are finding enough support to bet on Bitcoin. Tesla recently revealed that it holds Bitcoins worth $2 billion while PayPal offered to purchase the crypto custodian Curv.
At the same time, Citi has warned investors to make their investment in Bitcoin very carefully. It said that the future of Bitcoin isn’t certain albeit it is on the brink of widespread acceptance. The interest of institutional investors has sparked broad interest in Bitcoin but concerns over security, custody and capital efficiency are looming large.
All said and done, one thing is certain; the future belongs to the blockchain. But will cryptocurrency be a part of it, is probably a trillion dollars question that needs more time to find a certain and convincing answer. As far as the fair value of Bitcoin is concerned, whether the market will see another crypto crash or you must buy the Bitcoin dip, is anyone’s guess. Whatever you decided, make sure you make an informed decision as many renowned investors, including the Oracle of Ohama, see Bitcoin as no better than rat poison.