JPMorgan warns "Get ready for a fall" after Bitcoin's long-awaited halving event.
The long-awaited Bitcoin 'halving' has taken place, but faster gains should not be counted on just yet. JPMorgan says the price of the world's largest cryptocurrency could fall shortly after the event.
No price increase expected after the halving
As Insider's Yuheng Zhan reports, the halving, which happens every four years, reduces the amount of new Bitcoin entering circulation by halving the amount of rewards given to miners. The market largely describes this event as a bullish catalyst, helping the cryptocurrency to new record highs.
Analysts led by Nikolaos Panigirtzoglou said in a note, "We do not expect the Bitcoin price to increase after the halving as it is already priced in. In fact, we see downside in the post-halving Bitcoin price for a variety of reasons."
Overbought territory and low venture capital funding
First, JPMorgan says the Bitcoin market is still in overbought territory and remains elevated after hitting record highs in March. Panigirtzoglou points to several indicators that confirm this: "There is considerable optimism in the market that prices will rise significantly by the end of the year, with a key component of this optimism stemming from the view that demand for Bitcoin through spot ETFs will continue at the same pace even if Bitcoin supply declines after the halving event."
JPMorgan also suggests that venture capital funding remains low despite the recent revival in the crypto market, which is another negative for the price.
"We have previously argued that a rebound in crypto venture capital flows is a necessary condition for a sustainable recovery in crypto markets, so we think weak venture capital flows on an annualized basis pose a downside risk," the bank said in a note earlier this month.
Mining companies will take a hit
Analysts say mining companies will take a hit after the halving, while some may relocate to improve efficiency as they face the prospect of lower rewards: "Others may merge with larger publicly traded miners."
"In the aftermath of the halving, some Bitcoin mining firms are likely to head to low-energy-cost regions such as Latin America or Africa to deploy inefficient mining rigs and recover value from hardware that would otherwise be idle," JPMorgan analysts wrote.
