JPMorgan says Strategy's resilience is key to bitcoin's price direction in the near term

Strategy's (ticker MSTR) resilience matters more for bitcoin’s near-term price outlook than miner activity, according to JPMorgan analysts. That's despite the fact that the world's largest bitcoin holder has yet to sell BTC, and what appears to be increasing sell pressure from Bitcoin miners.

Bitcoin’s price has remained under pressure recently because of two factors, the JPMorgan analysts, led by managing director Nikolaos Panigirtzoglou, said in a Wednesday report. Those factors include the recent decline in the Bitcoin network hashrate and mining difficulty, and developments around Strategy.

The decline in hashrate and mining difficulty reflects two forces, the analysts said: China reiterating its ban on bitcoin mining after a surge in private mining activity, and high-cost miners outside China retreating as lower prices and elevated energy costs squeeze profitability.

While ordinarily a drop in hashrate boosts miner revenue, the analysts said "the bitcoin price continues to hover below its production cost," leading to sell pressure on the first and largest cryptocurrency. 

The JPMorgan analysts now estimate bitcoin’s production cost at $90,000, down from $94,000 last month. The updated estimate assumes electricity at $0.05/kWh, with each $0.01/kWh increase raising production cost by $18,000 for higher-cost producers, the analysts estimate. 

"As profits get squeezed amid elevated electricity costs and lower bitcoin price, certain high cost miners have been forced to sell bitcoins in recent weeks," according to JPMorgan's report.

Even so, the analysts said miners are not the main driver of bitcoin’s next move. Instead, they pointed to Strategy’s balance sheet and its ability to avoid selling bitcoin.

Strategy sends a signal

Strategy’s enterprise-value-to-bitcoin-holdings ratio — calculated as the combined market value of its debt, preferreds, and equity divided by the market value of its bitcoin — currently stands at 1.13, after declining sharply in the second half of this year, the analysts said. The fact that it remains safely above 1 is “encouraging,” because it signals that Strategy is unlikely to face pressure to sell bitcoin to meet dividend or interest obligations.

"If this ratio stays above 1.0 and MicroStrategy can eventually avoid selling bitcoins, markets will likely be reassured and the worst for bitcoin prices will likely be behind us," the analysts wrote.

The analysts also highlighted Strategy’s recent creation of a $1.44 billion U.S. dollar reserve, saying the fund could cover up to two years of dividend and interest payments. This reserve further reduces the likelihood of forced bitcoin sales “in the foreseeable future,” they said, helping stabilize bitcoin’s outlook.

Strategy has recently slowed its accumulation of bitcoin, including one week that may have passed without any new buys. However, the firm is still building its treasury and announced earlier this week that its stockpile crossed the 650,000 BTC mark.

MSTR's MSCI exclusion risk 'already more than priced in'

Markets are now watching whether MSCI will remove Strategy and other digital asset treasury or DAT companies from its equity indices. JPMorgan said the impact would likely be "asymmetric."

A removal decision would have limited downside, the analysts said, because the risk is “already more than priced in.” Since Oct. 10, when MSCI first announced its consultation, Strategy’s share price fell 40% through Dec. 2, underperforming bitcoin by 20%, or roughly $18 billion in market value. The scale of that underperformance suggests that markets have already priced in exclusion from MSCI — and potentially from all major equity indices, according to the analysts.

Last month, the analysts estimated that MSCI exclusion would induce $2.8 billion in outflows from Strategy, and $8.8 billion if all other equity indices were to follow suit. At the time, Strategy’s co-founder and executive chairman, Michael Saylor, said: “Index classification doesn’t define us. Our strategy is long-term, our conviction in bitcoin is unwavering.”

The analysts said MSCI’s pending Jan. 15 decision will be important for Strategy and for bitcoin’s trajectory, but reiterated that a negative decision would likely have limited additional downside.

By contrast, if MSCI keeps Strategy in its indices, the analysts said both Strategy and bitcoin “will likely rebound strongly” toward their pre-Oct. 10 levels — before what became the largest crypto liquidation event in history.

The analysts said if bitcoin’s price falls below its revised production-cost estimate of $90,000 and stays there for an extended period, as it did in 2018, more miners would come under pressure, potentially pushing production-cost estimates even lower. Production cost has historically acted as a “soft floor” or support level, they noted.

Still, the analysts reiterated bitcoin’s longer-term upside. Their volatility-adjusted comparison of bitcoin to gold continues to imply a theoretical bitcoin price close to $170,000, suggesting significant appreciation over the next 6–12 months if market conditions stabilize.

Bitcoin is currently trading around $92,340, according to The Block’s bitcoin price page.