Bitcoin has fallen below the $71,000 mark, yet one analyst believes the asset is trading roughly 41% under its long term fair value.
The price drop has wiped out all gains recorded since the U.S. presidential election in late 2024. Despite this decline, market analyst David argues that Bitcoin remains significantly undervalued when measured against its historical trend.
Market Stress Highlights a Widening Valuation Gap
Using a power law valuation model, David estimates Bitcoin’s fair value at $122,762, while spot prices hovered near $72,000 at the time of analysis. This creates a valuation gap of about $51,000, or 41%, which he notes is well below Bitcoin’s typical historical range.
Rather than pointing to macroeconomic headlines, David focused on market mechanics. He suggested that recent price weakness is largely driven by forced activity in derivatives markets, including hedging and liquidation pressure, instead of selling by long term holders.
One indicator supporting this view is Bitcoin’s z score, which measures how far price deviates from its long term trend. David estimated the z score at minus 0.76, signaling that Bitcoin has moved significantly below its normal deviation range.
Positioning data further supports this assessment. Over the past 30 days, Bitcoin’s price has dropped about 20%, while open interest has increased by nearly 7%, based on figures cited in the analysis.
According to David, this divergence shows that leveraged exposure is growing even as prices decline. He described it as a scenario where price weakness coincides with rising leverage, a combination that often leads to sharp and forced moves in either direction.
He also highlighted heightened volatility, noting that 20 day implied volatility exceeded 43%, alongside combined futures and options open interest above $2.3 billion. Under these conditions, David estimated a 70% chance of a short squeeze if prices begin to move higher, warning that market positioning could shift rapidly.
In addition, he identified the $73,000 level as a key gamma zone, where moves below this area could intensify volatility, while moves above it may help stabilize price action.
Leverage Driven Price Action Comes Into Focus
At the time of writing, Bitcoin was trading near $70,500, according to CoinGecko. This represents an almost 8% decline over the past 24 hours and nearly a 20% drop over the last seven days. Over the past month, Bitcoin has fallen close to 25%, leaving it about 44% below its all time high from October last year.
The downturn has triggered widespread liquidations. Data from CoinGlass shows that more than 154,000 traders were liquidated within 24 hours, with total losses approaching $718 million.
Strategy has also been impacted by the recent pullback. The firm recently acquired 855 BTC for $75.3 million, but according to the Kobeissi Letter, its Bitcoin holdings have moved further into the red, with paper losses reaching $40 billion over the past four months.
