According to a research released on Friday by Bank of America (BAC), the cryptocurrency market has started the year far better than most had anticipated, with the token universe up 42% year to date to $1.1 trillion.
The paper predicted that 2023 will mark the beginning of token price divergence, with utility tokens and those that make a call on cash flows outpacing meme and governance tokens.
The bank sees cryptocurrencies as growth assets that are subject to the same risks as growth equities since they power blockchain systems that support smart contracts and allow for the development of apps. It adds that this year's surge has been driven by these cryptocurrencies and small-cap liquid tokens.
Strong economic indicators postponed the timing of a recession, but they also "suggest the possibility for reflation and future rate hikes," according to Bank of America analysts, who remain cautious on growth.
According to analysts Alkesh Shah and Andrew Moss, "given that January's risk asset rally was largely driven by short-covering and mean reversion, the expected higher-for-longer rate environment may result in pressure on growth and, therefore, digital assets."
Shorting is a strategy for wagering on price declines. In the hopes that the price would fall, an investor borrows a security and sells it. They then buy the security again and give it back to the lender. According to the notion of mean reversion, which is utilized in finance, asset values tend to return to their long-term mean or average.