Bitcoin has soared 25% over the past 19 days, but that hasn’t made a believer out of JPMorgan.
Its strategists, led by Nikolaos Panigirtzoglou, put fair value for the world’s biggest digital currency at $38,000, 13% below the recent level of $43,884.
The year 2022 "is likely to be a more challenging and more mean-reverting year for digital assets,” the strategists wrote in a commentary.
“The biggest challenge for bitcoin going forward is its volatility and the boom-and-bust cycles that hinder further institutional adoption.”
The strategists base their fair-value estimate on a volatility ratio of bitcoin to gold of around 4 times. “In an upside scenario where there is more normalization in volatility to around 3 times, the fair value would be around $50,000,” they said. Gold was recently trading at $1,833 an ounce.
As for ethereum, the second largest digital currency, its blockchain is “already facing stiff competition from several blockchains which are effectively trying to replicate ethereum’s … applications,” the strategists said.
“In turn, this creates the risk that until sharding is implemented in 2023, ethereum will keep losing share in the total crypto market-cap space along with its declining share in DeFi [decentralized finance]/NFT [nonfungible token] spaces,” they said.
Sharding is a database-partitioning technique that enables blockchains to process transactions more quickly.
“In contrast to ethereum, bitcoin is unique in terms of its perception as digital gold and faces little direct competition from other blockchains or cryptocurrencies,” the strategists said.
They do see a bright long-term future for digital currencies. “There is little doubt that cryptocurrencies and digital assets more broadly are an emerging asset class and thus on a multiyear structural uptrend,” the strategists said.
“This naturally implies a higher growth for the universe of digital assets over the coming years relative to other alternative asset classes.
"However, this growth does not necessarily need to come from continuous price appreciation of existing cryptocurrencies such as bitcoin and ethereum, already popular among institutional investors.”
Rather, the growth “is more likely to come from the expansion of the universe of digital assets,” the strategists said.
