Bitcoin has retreated to approximately 118,800 after momentarily surpassing the 122,000 threshold this week. While some market participants interpret this as momentum fatigue, fundamental valuation models suggest Bitcoin may be significantly underpriced relative to its intrinsic value. Most notably, the Energy Value model—which evaluates Bitcoin based on network fundamentals—indicates a fair value range between 145,000 and 167,800, revealing that Bitcoin is currently trading at a 31% discount to its energy consumption value, reminiscent of conditions just before the 2020 bull market.

Key takeaways

• Bitcoin's Energy Value model suggests fair value between 145,000-167,800, indicating a 31% discount at current prices.
• The present valuation gap exceeds the discount seen in September 2020 when Bitcoin traded at 10,000 before a major rally.
• On-chain metrics show retail dominance in recent trading while institutional investors remain cautious.
• Mining network strength and Hash Ribbon indicators signal continued miner confidence despite price volatility.
• Technical analysis suggests 120,000 as immediate resistance with key support at 116,000, 108,000, and 101,000.

Understanding the Energy Value discount

The Energy Value model, pioneered by Capriole Investments, calculates Bitcoin's intrinsic worth based on the energy expended to maintain the network's security. This approach treats Bitcoin similarly to commodities, where production costs establish a value floor. Recent calculations place this metric between 145,000 and 167,800—substantially above current trading prices.

Charles Edwards, Capriole's founder, has highlighted that Bitcoin now exhibits a greater discount to its Energy Value than in September 2020, when it traded around 10,000 before embarking on a prolonged uptrend to record highs.

This discount is particularly noteworthy today. With hash rates reaching unprecedented levels, the Energy Value's simple moving average has climbed to 167,800, positioning Bitcoin approximately 31% below its estimated fair value—a level of undervaluation that historically preceded significant price appreciation.

Although historical patterns don't guarantee future outcomes, this substantial divergence between market price and network fundamentals represents a potential opportunity. Such disconnects typically resolve through price adjustments when market sentiment shifts.

Retail traders dominate as institutions wait

Despite compelling undervaluation signals, institutional participation remains measured. While exchange-traded funds and corporate holders like MicroStrategy maintain substantial Bitcoin positions (MicroStrategy's holdings exceed 628,000 BTC), there's limited evidence of aggressive institutional accumulation during this pullback.

On-chain analysis supports this observation. Transaction size data reveals an increase in smaller trades, indicating predominantly retail-driven activity. This contrasts with previous significant rallies, which typically featured increasing large-block orders characteristic of institutional or whale accumulation.

This pattern suggests institutional investors are adopting a wait-and-see approach, potentially awaiting technical confirmation. A sustained break above 125,000 might catalyse renewed institutional interest. For now, the market structure reflects a transitional phase—strong underlying value coupled with cautious capital deployment from larger players.

Bitcoin miner activity signals network confidence

Bitcoin's hash rate continues to hover near all-time highs, demonstrating robust miner commitment. This indicates confidence in the network's long-term prospects. Particularly significant is the Hash Ribbons indicator, which generated a "Buy" signal in late July—historically a reliable precursor to upside potential.

The Hash Ribbons methodology is straightforward: when short-term hash rate falls below the long-term average and subsequently recovers, it signals miner capitulation followed by revival. Throughout previous cycles, this pattern often preceded extended rallies. The recent signal suggests miners are not merely weathering market fluctuations but actively increasing their operational commitment.

This growing energy investment further validates the upper range of the Energy Value model, reinforcing the narrative that current market prices undervalue Bitcoin's operational fundamentals.

Retail-led market may signal entry point

The increasing prevalence of retail-sized transactions indicates a speculative environment typically characterised by momentum-based trading and emotional decision-making. Historically, periods of retail dominance alongside institutional caution tend to produce heightened market volatility.

Market analysts emphasise, however, that this isn't necessarily bearish. Should institutional investors perceive retail traders as establishing a credible price foundation, they might re-enter the market decisively—particularly if macroeconomic conditions turn favourable. Potential interest rate reductions by the Federal Reserve in September could serve as a catalyst for renewed market sentiment and capital inflows.

Technical analysis perspective

Currently, Bitcoin is experiencing a notable pullback from its recent advance, with selling pressure targeting the 118,000 level. However, volume indicators reveal an appreciable increase in buying interest against limited selling resistance. This suggests potential for a short-term rebound if sellers fail to maintain downward momentum.

Any recovery from current levels would likely encounter resistance near 120,000, which now functions as an immediate overhead barrier. Should the correction deepen, initial support may emerge at 116,000. In a more pronounced downturn, stronger support zones exist at 108,000 and 101,000, corresponding to previous consolidation areas and psychological thresholds.

These technical levels, when considered alongside Energy Value undervaluation signals and miner confidence indicators, provide context for assessing near-term risks against longer-term opportunities.

Investment considerations

Bitcoin's retreat to 118,800 potentially represents a value opportunity rather than a trend reversal. With the asset trading substantially below its network-derived fair value and miners showing continued confidence, the current market structure more closely resembles early accumulation phases than distribution patterns.

Should institutional buying resume above 125,000, this correction may ultimately be viewed as a strategic entry point. The energy value disparity, reinforced by persistent miner commitment, suggests Bitcoin's current price may be more attractive than surface analysis indicates.

How do you think Bitcoin will move next? Speculate today with a Deriv MT5 account.