Bitcoin's Undervaluation and Recovery Potential in a Post-Deleveraging Market

The cryptocurrency market has entered a pivotal phase following the deleveraging event of late 2024, which reshaped institutional positioning and risk dynamics. Bitcoin, now trading at approximately $103,000, has drawn renewed attention from institutional investors and arbitrageurs who view it as undervalued relative to traditional assets like gold. This article examines Bitcoin's recovery potential through the lens of institutional re-rating and risk-adjusted value arbitrage, drawing on recent market trends, on-chain metrics, and strategic shifts in capital allocation.

Institutional Re-Rating: A Shift in Capital Allocation

Institutional investors have recalibrated their approach to Bitcoin post-deleveraging, with some viewing price corrections as opportunities to accumulate. For instance, Strategy, an institutional investment firm, added 397 Bitcoin (BTC) between October 27 and November 2, 2025, at an average price of $114,771, totaling $45.6 million, according to a Strategy Bitcoin purchase report. This move reflects a broader trend where institutions are treating Bitcoin as a strategic asset, despite its volatility.

Conversely, Bitcoin miners like Marathon Digital Holdings (MARA) have adopted a more pragmatic stance. Faced with rising operational costs and margin compression, Marathon recently announced a policy to sell a portion of newly mined Bitcoin to fund operations, according to a Jefferies MARA report. While this strategy has boosted liquidity, it has also contributed to sell pressure, complicating Bitcoin's price trajectory. Jefferies analysts, however, remain cautiously optimistic, maintaining a "hold" rating on MARA shares due to the firm's $6.85 billion in cash and Bitcoin reserves, as noted in the Jefferies MARA report.

On-Chain Metrics Signal Undervaluation

Bitcoin's undervaluation is further supported by on-chain indicators. The Short-Term Holder Realized Price (STH RP) currently hovers around $113,000, acting as a critical support level. Holding above this threshold suggests that recent investors are in profit or breakeven, which could catalyze further inflows, according to a Bitcoin price cycle analysis. Historical data indicates that retests of the STH RP often precede bull phases, with potential price targets of $160,000–$200,000 by late 2025 if Bitcoin sustains above $113,000, as noted in the Bitcoin price cycle analysis.

The Market Value to Realized Value (MVRV) Ratio also paints a compelling picture. For Short-Term Holders, Bitcoin has historically found support at the 0.66 MVRV level during downturns. Applying this to the current STH RP projects a $160,000–$200,000 range by late 2025, according to the Bitcoin price cycle analysis. Meanwhile, Long-Term Holder (LTH) MVRV metrics suggest a peak of $163,000–$165,000, reflecting the maturing nature of the Bitcoin market, as noted in the Bitcoin price cycle analysis.

Risk-Adjusted Arbitrage: A New Equilibrium

Post-deleveraging, Bitcoin's risk-adjusted valuation has become more attractive compared to gold. JPMorgan's Nikolaos Panigirtzoglou estimates that Bitcoin's volatility-adjusted fair value implies a price target of $170,000 to match gold's $6.2 trillion in private-sector investment, according to a JPMorgan analysis. At current levels, Bitcoin trades $68,000 below this fair value, creating a compelling risk-reward profile, as noted in a JPMorgan analyst report.

Arbitrage strategies have also evolved to exploit market inefficiencies. Funding rate arbitrage between perpetual futures and spot prices, cross-exchange arbitrage, and AI-driven tools like Token Metrics' risk management platforms are now central to institutional strategies, according to a Token Metrics trading strategy blog. For example, the alignment of spot Bitcoin ETFs and CME futures contracts has enabled basis trades, where arbitrageurs profit from the difference between futures and spot prices, according to a Capriole update.

Institutional Selling and Macroeconomic Headwinds

Despite these positives, institutional selling remains a headwind. Public treasury companies and U.S. Bitcoin ETFs have actively offloaded holdings, driven by macroeconomic uncertainties and the U.S. government shutdown, as noted in the Capriole update. Long-term holders, often referred to as "OGs," have also reduced positions, echoing patterns from the 2017 bear market, as noted in the Capriole update. On-chain data, however, suggests that robust fundamentals could support a rapid rebound if institutional demand resurges.

The Federal Reserve's accommodative policy, including planned rate cuts, may reverse this bearish momentum. A low-risk posture is advisable until market dynamics shift, but the structural risks purged during deleveraging have created a cleaner base for recovery, as noted in the Capriole update.

Conclusion: A Path to Recovery

Bitcoin's undervaluation, supported by institutional re-rating and risk-adjusted arbitrage opportunities, positions it for a potential rebound. While macroeconomic headwinds persist, the alignment of on-chain metrics, regulatory clarity, and evolving arbitrage strategies suggests that Bitcoin could reclaim its $113,000 support level and test higher targets in the coming months. Investors and institutions alike should monitor liquidity conditions and Fed policy, as these factors will ultimately determine the trajectory of Bitcoin's next bull phase.