Evaluation of Bitcoin's Deviation from the Power-Law Model
Author James Van Straten, edited by Oliver Knight, analyzes Bitcoin's current trading status relative to the power-law model. Bitcoin is trading about 32% below the power-law model, which implies a value near $118,000. This deviation is the largest since the August 2024 yen carry trade unwind, which caused approximately 35% deviation and took about three months to recover.
The power-law framework describes long-term price trends on a logarithmic scale and is backward-looking, meaning it does not guarantee future predictive accuracy. Unlike this, the Stock-to-Flow model by PlanB has been invalid since January 2021; according to current Glassnode data, this model would imply a Bitcoin price of approximately $1.3 million if it remained valid.
Bitcoin trading below $90,000 represents a steep discount to the power-law model. The key question now is whether mean reversion will cause the price to move back toward the power-law trend or if this cycle will challenge another long-standing model. Historically, Bitcoin has tended to overshoot the power-law model during bull markets and undershoot during bear markets, but this current cycle has largely followed the model so far.
