JP Morgan Chase's Chairman and CEO Jamie Dimon's prediction has many worried. Photo: AFP/Eric Piermont
JPMorgan CEO Jamie Dimon has been hosting secret meetings with Coinbase chief executive Brian Armstrong since 2018. Photo: AFP

JPMorgan, one of Wall Street’s biggest banks and up until recently an outspoken bitcoin critic, has changed its tune on the world’s number one cryptocurrency, Billy Bambrough writes in Forbes. 

The bitcoin price, now hovering at just under $10,000 per bitcoin, has added around 30% since the beginning of the year despite the coronavirus crash and bitcoin’s closely-watched third supply squeeze

Now, JPMorgan, whose chief executive once branded bitcoin a “fraud,” has said bitcoin is looking “mostly positive” and cryptocurrencies more broadly have “longevity as an asset class.”

“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,” said JPMorgan analysts in a report led by head of US interest rate derivatives strategy Joshua Younger and cross asset research analyst Nikolaos Panigirtzoglou.

Bitcoin briefly crashed to under $4,000 per bitcoin in March, losing over half of its value in under month as the spreading coronavirus pandemic sent panic through global markets.

Bitcoin bounced back quicker than most other assets, however, recovering almost all of its corona-crash losses by the end of April. 

Equity markets have also now almost entirely returned to pre-coronavirus highs, boosted by unprecedented central bank stimulus led by multi-trillion dollar measures from the US Federal Reserve

While JPMorgan found the bitcoin price has recently begun to trade inline with riskier assets like equities, bitcoin has consistently maintained a price above its production costs. 

Others have previously said the cost of creating new bitcoin, a process known as mining, is a potential bitcoin price floor.

However, the net cost of bitcoin mining has changed recently, with the number of bitcoin rewarded to those that maintain the bitcoin network cut by half in May –dropping from 12.5 bitcoin to 6.25.

Ahead of the May halving, the cost of mining one bitcoin was put at around $7,000 by crypto-focused research firm TradeBlock.

The bitcoin price has climbed since its third halving, but it’s failed to hold onto gains above $10,000 despite repeatedly moving above the psychological line.

JPMorgan analysts found the bitcoin price has rarely dipped below bitcoin’s cost of production. JPMORGAN / BITINFOCHARTS.COM

Elsewhere, the report found “there is little evidence of run dynamics, or even material quality tiering among cryptocurrencies, even during the throws of the crisis in March,” suggesting bitcoin weathered its “first stress test” well. 

JPMorgan also said it expects bitcoin to remain mostly a speculative asset. 

“[Bitcoin] price action points to their continued use more as a vehicle for speculation than medium of exchange or store of value,” according to the JPMorgan report, titled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?”

The bitcoin and cryptocurrency community has been caught off guard by JPMorgan’s apparent 180-degree reversal on bitcoin and cryptocurrencies. 

Earlier this month, JPMorgan signed established US bitcoin and cryptocurrency exchanges Coinbase and Gemini as customers after a lengthy vetting period and it’s emerged that JPMorgan CEO Jamie Dimon has been hosting secret meetings with Coinbase chief executive Brian Armstrong since 2018.