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

İlhan Kerem Şenel; Faruk Yılmaz

doi:10.17261/Pressacademia.2026.2034

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

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.

Keywords

References

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Details

Primary Language

English

Subjects

Finance and Investment (Other)

Journal Section

Research Article

Authors

İlhan Kerem Şenel ^*
0000-0003-4496-5149
Türkiye

Faruk Yılmaz
0000-0001-7398-8302
Türkiye

Publication Date

June 30, 2026

Submission Date

June 11, 2026

Acceptance Date

June 30, 2026

Published in Issue

Year 2026 Volume: 15 Number: 1

DOI

https://doi.org/10.17261/Pressacademia.2026.2034

IZ

https://izlik.org/JA54HS38BZ

Cite

RIS / Bibtex

APA

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, 15(1), 65-77. https://doi.org/10.17261/Pressacademia.2026.2034

AMA

1.Şenel İK, Yılmaz F. BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM. JBEF. 2026;15(1):65-77. doi:10.17261/Pressacademia.2026.2034

Chicago

Şenel, İlhan Kerem, and Faruk Yılmaz. 2026. “BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM”. Journal of Business Economics and Finance 15 (1): 65-77. https://doi.org/10.17261/Pressacademia.2026.2034.

EndNote

Şenel İK, Yılmaz F (June 1, 2026) BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM. Journal of Business Economics and Finance 15 1 65–77.

IEEE

[1]İ. K. Şenel and F. Yılmaz, “BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM”, JBEF, vol. 15, no. 1, pp. 65–77, June 2026, doi: 10.17261/Pressacademia.2026.2034.

ISNAD

Şenel, İlhan Kerem - Yılmaz, Faruk. “BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM”. Journal of Business Economics and Finance 15/1 (June 1, 2026): 65-77. https://doi.org/10.17261/Pressacademia.2026.2034.

JAMA

1.Şenel İK, Yılmaz F. BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM. JBEF. 2026;15:65–77.

MLA

Şenel, İlhan Kerem, and Faruk Yılmaz. “BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM”. Journal of Business Economics and Finance, vol. 15, no. 1, June 2026, pp. 65-77, doi:10.17261/Pressacademia.2026.2034.

Vancouver

1.İlhan Kerem Şenel, Faruk Yılmaz. BITCOIN VALUATION THROUGH POWER LAW ANALYSIS: EVIDENCE FOR LONG-TERM MEAN REVERSION AND SHORT-TERM MOMENTUM. JBEF. 2026 Jun. 1;15(1):65-77. doi:10.17261/Pressacademia.2026.2034