Why Bitcoin Remains Undervalued Amid Market Volatility

Bitcoin's recent underperformance in 2025-falling to a mere 1% gain before slipping into negative territory-has fueled renewed skepticism, particularly from traditional finance figures like Nobel laureate Eugene Fama. Yet, beneath the surface of short-term volatility lies a compelling narrative of structural resilience and institutional adoption that underscores Bitcoin's undervaluation. This analysis argues that Bitcoin's role as a store of value is increasingly validated by market fundamentals, regulatory progress, and the maturation of DeFi infrastructure, despite Fama's dire warnings.

Institutional Adoption: A Structural Catalyst

The institutionalization of Bitcoin has accelerated in 2025, driven by regulatory clarity and innovative infrastructure. BlackRock's IBIT ETF, for instance, has attracted $50 billion in assets under management (AUM), capturing 48.5% of the market share since the SEC's approval of spot Bitcoin ETFs in early 2024. This surge reflects a broader shift as corporations like MicroStrategy expand their Bitcoin holdings, acquiring 257,000 BTC in 2024 alone-a strategic pivot from traditional cash management.

DWF Labs, a leading crypto market maker, has further cemented Bitcoin's institutional credibility. Andrei Grachev, Managing Partner at DWF Labs, highlighted in his "Liquidity Wars" keynote at Blockchain Life 2025 that synthetic dollar instruments and leveraged positions pose systemic risks, as evidenced by a $7 billion loss in a single week. In response, DWF Labs has pivoted to scalable solutions like arbitrage and real-world asset (RWA) integration, launching a $75 million fund to support institutional-grade DeFi projects.

This initiative underscores a critical shift: DeFi is no longer a niche experiment but a robust infrastructure capable of handling significant capital while prioritizing yield sustainability and order-flow protection.

Structural Resilience in a Volatile Market

Bitcoin's structural resilience is further reinforced by the tokenization of real-world assets (RWAs). The RWA market has grown from $8.5 billion in early 2024 to $33.91 billion by Q2 2025, with tokenized treasuries, credit instruments, and money-market funds attracting institutional capital. Platforms like BlackRock's BUIDL, which tokenizes money-market funds, exemplify the convergence of traditional and decentralized finance. Regulatory frameworks such as the EU's MiCA and the U.S. GENIUS Act have also provided clearer compliance standards, enabling KYC-gated wallets and permissioned pools to bridge the gap between DeFi and institutional requirements.

Grachev's emphasis on liquidity provision is equally telling. DWF Labs' recent "Liquidity Provider of the Year 2025" award at the Blockchain Life Awards highlights its role in stabilizing markets through advanced order-book management and risk-adjusted strategies. These developments suggest that Bitcoin's volatility is being mitigated by institutional-grade infrastructure, which prioritizes capital preservation and yield optimization over speculative trading.

Contrasting Fama's Skepticism with Market Realities

According to Fama's analysis, Eugene Fama's assertion that Bitcoin has a "close to 100%" probability of becoming worthless within a decade hinges on its volatility and lack of intrinsic value. While his critique is rooted in traditional economic theory, it overlooks the evolving role of Bitcoin as a decentralized store of value. Fama argues that Bitcoin's fixed supply renders its value demand-driven and inherently unstable. However, this ignores the asset's growing adoption as a hedge against inflation and fiat devaluation, particularly in jurisdictions with weak monetary policies.

Moreover, Bitcoin's risk-adjusted returns, though underwhelming in 2025 Q3-Q4 (with a -1.2% return compared to gold's +55.2%), mask its long-term outperformance. Historically, Bitcoin has delivered 50.5% annualized returns with 67.0% volatility (Sharpe ratio of 0.7), outpacing gold's 10.4% annualized returns and 14.5% volatility (Sharpe ratio of 0.6). This divergence underscores Bitcoin's potential as a high-risk, high-reward asset in diversified portfolios, particularly as institutional infrastructure reduces its volatility over time.

The Path Forward: Undervaluation Amid Uncertainty

Bitcoin's current undervaluation is a function of short-term macroeconomic pressures and regulatory scrutiny, not its intrinsic fundamentals. The tokenization of RWAs and the maturation of DeFi infrastructure are creating a flywheel effect: institutional capital is increasingly allocated to Bitcoin-backed products that offer yield, liquidity, and regulatory compliance. For example, DWF Labs' focus on arbitrage and RWA integration demonstrates how Bitcoin can be leveraged to generate sustainable returns without exposing investors to the full brunt of its volatility.

Fama's dismissal of Bitcoin also fails to account for its role in a dual safe-haven framework. While gold surged during the October 2025 crash, Bitcoin's subsequent stabilization and low correlation with traditional assets (0.1–0.3) position it as a complementary hedge. As liquidity returns and risk appetite stabilizes, Bitcoin's ability to capture growth in a post-crisis environment becomes increasingly valuable.

Conclusion

Bitcoin's undervaluation is a temporary phenomenon, driven by macroeconomic headwinds and regulatory uncertainty, rather than a reflection of its structural potential. The institutional adoption of Bitcoin and DeFi, coupled with RWA integration and improved liquidity infrastructure, is laying the groundwork for a more resilient and scalable financial system. While Fama's skepticism highlights valid concerns about volatility and speculative demand, the market's response-$50 billion in ETF inflows, $33.91 billion in RWA growth, and DWF Labs' institutional-grade strategies-demonstrates that Bitcoin's role as a store of value is being validated by capital flows and innovation. For investors, the current volatility represents an opportunity to position for a future where Bitcoin's structural advantages are fully realized.