According to analysts at JPMorgan, the level of 'resilience' of Strategy plays a key role in the short-term price movements of Bitcoin, more important than the increasing selling pressure from miners — despite Strategy, the largest bitcoin holder in the world, having not sold any.
In a report on Wednesday, the analysis team led by CEO Nikolaos Panigirtzoglou stated that the price of bitcoin has recently come under pressure from two factors: the decline in hashrate and mining difficulty on the network, along with developments related to Strategy.
The hashrate and difficulty decrease stems from two reasons: China reaffirmed the ban on mining after private mining activities surged, and high-cost miners outside of China had to withdraw due to low bitcoin prices and rising energy costs squeezing profits.
Typically, a decrease in hashrate helps increase miners' revenue. However, according to JPMorgan, "bitcoin prices remain below production costs," leading to selling pressure on the largest digital asset.
JPMorgan currently estimates the cost of producing bitcoin at $90,000, down from $94,000 last month. This price assumes an electricity cost of $0.05/kWh; each additional $0.01/kWh increase will raise the production cost for high-cost miners by about $18,000.
The report states: as electricity costs rise and bitcoin prices fall, many high-cost miners have been forced to sell bitcoin in recent weeks.
Nevertheless, analysts emphasize that miners are not the determining factor for bitcoin's next direction. Instead, the market is watching Strategy's balance sheet and the company's ability to avoid selling bitcoin.
Signals from Strategy
The ratio of enterprise value to bitcoin held by Strategy — calculated by the total market value of debt, preferred shares, and equity divided by the market value of the bitcoin held — is currently at 1.13 after a sharp decline in the second half of this year. The fact that this ratio remains above 1 is considered 'positive', as it indicates that Strategy has not faced pressure to sell bitcoin to cover interest or dividends.
"As long as this ratio remains above 1 and Strategy avoids selling bitcoin, the market will be reassured and the worst phase of bitcoin prices may be behind us," the report stated.
The analysis team also mentioned the $1.44 billion reserve fund that Strategy has just established, which could cover up to two years of dividend and loan obligations — thereby significantly reducing the risk of having to sell bitcoin in the near future.
Although the pace of accumulating bitcoin has slowed down, even having weeks without additional purchases, Strategy continues to expand its reserves and this week announced that its holdings have surpassed 650,000 BTC.
The risk of being excluded from MSCI 'has been largely reflected'
The market is now watching whether MSCI will exclude Strategy and other companies holding digital assets from the index basket. According to JPMorgan, the impact of this decision will be 'asymmetric'.
The expected exclusion is likely to result in limited price declines, as this risk 'has been largely reflected'. From October 10 — when MSCI announced the consultation — to December 2, Strategy's shares fell 40%, underperforming bitcoin by 20%, equivalent to a loss of about $18 billion in market capitalization. This steep decline indicates that the market had priced in the possibility of being excluded from MSCI, and possibly from other major indices.
Last month, JPMorgan estimated that being excluded from MSCI would cause $2.8 billion in capital outflows from Strategy, and $8.8 billion if other indices did the same. At that time, co-founder and CEO Michael Saylor said: 'Index classification does not define us. Our strategy is long-term and our belief in bitcoin is unchanged.'
JPMorgan believes that the upcoming decision on January 15 by MSCI will be important for Strategy and the trajectory of bitcoin, but a negative outcome will be unlikely to create significant additional selling pressure.
Conversely, if Strategy is retained, stocks and bitcoin 'are likely to rebound strongly' to levels before October 10 — the time of the largest liquidation event in crypto history.
Production costs could create a 'soft bottom', with a positive long-term outlook
If the price of bitcoin falls below the new production cost of $90,000 and remains there for an extended period like in 2018, many miners will face pressure, driving the overall production cost down further. History shows that production costs often serve as a 'soft bottom' for prices.
Although short-term factors are still quite volatile, the analysis team reaffirmed the long-term outlook for bitcoin. Comparing the volatility between bitcoin and gold shows that the fair price of bitcoin could reach $170,000, opening up the possibility for significant growth in the next 6–12 months if the market stabilizes.