Fundstrat, a research firm managed by a famous American strategist and crypto enthusiast Thomas Lee, just published a part of its analysis that predicts Bitcoin price in the range of $20,000-$64,000 by the end of 2019. On a more short-term note, Tom Lee expects a rally in price for the next couple of days that should push Bitcoin’s price over $10,000.
Price/Miner’s Breakeven Cost multiple
The main tool the researchers used to estimate the price is a Price/Miner’s Breakeven Cost multiple (P/BE). Operating miners is a costly venture as they require electricity, maintenance, cooling, etc. The equipment itself is often expensive to invest in. P/BE is a ratio that measures coin price compared to miner’s breakeven cost.
In a note published by Fundstrat, the company argues that “the Price/Miner’s Breakeven Cost multiple has proven a reliable long-term support level, and further, that the likely trajectory of future mining infrastructure growth should underpin bitcoin price appreciation into year-end 2019″. They have observed a P/BE multiple to be on average 1.8. As the company expects Miner’s Breakeven Cost to rise in the future, they assume that the price should rise accordingly. Their estimates put Bitcoin price in the $20,000-$64,000 range by the end of 2019.
Increasing Cost of Mining
Put in simple terms, the profit in mining comes from the Bitcoin rewards and transaction fees, which are given to a miner who appends a block to the blockchain. The number of blocks being added to the chain is fixed at about 1 every 10 minutes. More miners there are trying to add the next block, more difficult it is for each miner to do so. Fundstrat expects “the mining economy to grow over the next several years”, this means that they expect more miners to be “chasing” the rewards. This requires individuals involved in mining to either spend more power or to upgrade to new costlier equipment that the company predicts will appear on the market soon. In either case, the Miner’s Breakeven Cost would increase.
Will Bitcoin price cross $10,000 in the next few days?
Tom Lee has also made comments regarding the short-term prospects for Bitcoin price. He expects the price to break the $10,000 mark. The main justification for this expectation is the annual Consensus conference. It has been taking place in Manhattan from May 14 to May 16. As Mr. Lee pointed out, Bitcoin price during the last several conferences increased by 10% to 70%. Unfortunately, the increase is yet to show. Bitcoin price remains in the $8,000-$9,000 range since the start of the conference.