Over a long enough time frame, every long-term valuation model for bitcoin has eventually been broken, but the one that has preserved the strongest narrative in this cycle has been the power law model.
Historically, in previous cycles, bitcoin has tended to exceed this model during bull markets and fall below it during bear markets, but in the current cycle the price has largely stayed close to the trajectory of the model.
The Bitcoin power-law framework provides a mathematical view of long-term price trends, revealing that bitcoin’s historical performance follows a power-law distribution on a log scale. This implies a correlation between time and price. However, the model is dependent on historical observations.
In theory, it is a backward-looking model that does not guarantee future predictive accuracy, especially given the unpredictable nature of financial markets. The model is useful for understanding long-term structural trends.
Below $90,000, bitcoin is currently trading at a steep discount to the model. The power law value is close to $118,000, which places the spot price about 32% below the model. This is the biggest deviation since the yen carry trade unraveled back in August 2024, which produced a 35% deviation from the trend line and took three months to recover.
From a broader perspective, bitcoin has spent most of this cycle tracking closely to the model, whereas in previous cycles it deviated far more aggressively both above and below it.
In the last cycle, the most prominent model was the stock to flow framework created by anonymous analyst Plan B, which assumes that scarcity directly drives value. The model has been invalid since January 2021, and according to current Glassnode data, it would entail a price of around $1.3 million per bitcoin today.
The key question now is whether the bitcoin mean reverses against the power law trend or breaks down and challenges the validity of yet another long-standing model.
