In a complete U-turn, the investment banking giant is now singing Bitcoin’s praises saying it has weathered its first test and is “mostly positive” about Bitcoin as a form of investment
JP Morgan, one of the biggest banks on Wall Street and previously known for being a staunch critic of Bitcoin, has completely changed its stance on the world’s number one cryptocurrency.
Despite the crash caused by the COVID-19 pandemic and the halving in May, Bitcoin’s price has increased by around 30% since the beginning of the year.
The investment firm states that Bitcoin is looking “mostly positive” and that cryptocurrencies, in general, have “longevity as an asset class.”
JP Morgan analysts said that “though the [Bitcoin] bubble collapsed as dramatically as it inflated, Bitcoin has rarely traded below the cost of production, including the very disorderly conditions that prevailed in March.”
Bitcoin crashed briefly to $4,000, losing more than half of its value last March as a result of the panic generated by the coronavirus across global markets. However, it regained traction faster than most other assets, recovering nearly all of its losses in the crash by the end of April.
JP Morgan found that while the price of Bitcoin has recently begun to trade inline with riskier assets like equities, it has consistently maintained a price above its production costs.
Prior to this, others have dubbed the cost of creating new Bitcoin, formally known as mining, as the potential Bitcoin price floor.
Due to the halving, the net cost of Bitcoin mining has been altered; as a result, the number of Bitcoin rewarded to users that maintain the Bitcoin network was reduced by 50% in May, dropping from 12.5 bitcoins to 6.25.
Before the last halving, crypto-focused research firm TradeBlock estimated that the amount it took to mine one bitcoin was around $7,000. The price has risen since then, although it has failed to hold onto gains above $10,000 despite repeatedly moving above this value.
The report found that elsewhere, “there is little evidence of run dynamics, or even material quality tiering among cryptocurrencies, even during the throws of the crisis in March.”
This suggests that the cryptocurrency performed well on its first “stress test.”
JP Morgan has also shared that it expects Bitcoin to remain a mostly speculative asset. As written in their report, entitled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?”, the company states that the cryptocurrency’s price action is an indication of their continued use as a vehicle for speculation, far more than as a medium of exchange or as a store of value.