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Journals / Journal of Business Economics and Finance / 2026 / Volume: 15 Issue: 1

BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM

İlhan Kerem Şenel(ISTANBUL UNIVERSITY-CERRAHPASA)0000-0003-4496-5149
Faruk Yılmaz(MUS ALPARSLAN UNIVERSITY)0000-0001-7398-8302
Pages
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Publication Date
2026-06-30
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AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

The results offer quantitative support for valuation-based, time-horizon-dependent trading strategies and highlight the relevance of power law frameworks for understanding long-term Bitcoin price dynamics.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:Purpose- This study examines the application of power law relationships to Bitcoin valuation and investigates whether deviations from this relationship provide predictive information for future returns across different time horizons.
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Key Findings & Data:Methodology- Using daily Bitcoin–US dollar (BTCUSD) price data spanning from July 2010 to July 2025, the study estimates a power law relationship between Bitcoin price and time since the Genesis Block.
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Conclusion & Impact:The results offer quantitative support for valuation-based, time-horizon-dependent trading strategies and highlight the relevance of power law frameworks for understanding long-term Bitcoin price dynamics.
🔬Design:Modeling & Simulation
📍Scope:2010 Verileri
⚙️Variables:Bitcoin · power law · cryptocurrency valuation

Abstract

Purpose- This study examines the application of power law relationships to Bitcoin valuation and investigates whether deviations from this relationship provide predictive information for future returns across different time horizons. Methodology- Using daily Bitcoin–US dollar (BTCUSD) price data spanning from July 2010 to July 2025, the study estimates a power law relationship between Bitcoin price and time since the Genesis Block. The robustness of the model is evaluated using goodness-of-fit measures. Deviations from the power law-implied fair value are calculated and classified into deciles to analyze their ability to predict Bitcoin returns over short-term (weekly), medium-term (monthly), and long-term (annual) horizons. Risk-adjusted performance is assessed using Sharpe ratios. Findings- The analysis establishes a highly robust power law relationship between Bitcoin price and time, with an R² of 0.9589, indicating exceptional stability over the 15-year period. The estimated relationship, Price = 2.86e-17 × Time_Since_Genesis^5.71, remains consistent throughout the sample. Deviations from the power law-derived fair value exhibit strong predictive power for future returns, with distinct patterns across time horizons. Short-term returns display momentum effects, as the most overvalued decile generates the highest risk- adjusted returns (Sharpe ratio = 1.81). Medium-term returns peak under extreme valuation conditions, particularly in deeply undervalued and highly overvalued states. In contrast, long-term returns demonstrate clear mean reversion, with moderately valued positions yielding the highest absolute annual returns. Conclusion- These findings provide strong evidence that Bitcoin pricing deviates from the assumptions of strict market efficiency. The results offer quantitative support for valuation-based, time-horizon-dependent trading strategies and highlight the relevance of power law frameworks for understanding long-term Bitcoin price dynamics.

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Cite This Article

Şenel, İ. K., Yılmaz, F. (2026). BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM. Journal of Business Economics and Finance, Volume: 15 Issue: 1. https://doi.org/10.17261/Pressacademia.2026.2034

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