Analysts at JPMorgan Chase said that as one of the most anticipated catalysts for further gains in Bitcoin, the halving event may ultimately cause Bitcoin prices to fall. Bitcoin will undergo a "halving" update in April, which will subsequently reduce the number of daily issued tokens in half to about 450, which Bitcoin supporters believe will cause a supply shortage. The approval of a spot exchange-traded fund (ETF) in January has fueled a surge in demand for Bitcoin, which has surged about 45% this year to about $62,000 for the largest cryptocurrency.

Historically, Bitcoin prices have typically continued to rise after halving events, with so-called miner production costs acting as a floor for the asset's price. JP Morgan strategists said that the average production cost of Bitcoin is currently $26,500 per coin and will "mechanically double" to $53,000 after the halving.

However, as mining difficulty increases, small miners will be forced out of operations, and mining difficulty may be 20% lower than initially estimated, thus reducing production costs. Strategists wrote on Thursday that Bitcoin may fall back to $42,000 after April as the lower support function weakens.


The strategists' expectations are based on two key assumptions: First, post-halving electricity costs for miners are expected to average 5 cents per kilowatt-hour, which could vary by location and size. Secondly, withBitcoin mining will become more energy-intensive after April, and some private miners with less efficient fleets and difficulty in obtaining funds will exit the market because their profits cannot cover production costs, causing the hash rate (a measure of the industry's total mining capacity) to drop by about 20%.

“A 20% drop would bring hash rate closer to its historical trend,” the strategists wrote. “This would lower the midpoint of our projected production cost range to $42,000. This is also where we envision post-April after the halving excitement fades.”

However, if Bitcoin prices continue to move higher, the predicted hash rate drop may not materialize. After publicly traded miners gained more market share in 2022, a rise in Bitcoin prices the following year attracted small miners back to the industry as less efficient miners once again had room to profit.


In addition, as newly issued spot Bitcoin ETFs will continue to attract a new influx of investors, Bitcoin prices will rise, and small miners may still remain profitable after supply cuts in April.