The bank believes that the tokens that power smart contract-enabled blockchain platforms will outperform meme coins and governance tokens.
The cryptocurrency market is off to a much better start this year than anyone had expected. With the token universe up 42% year to date to $1.1 trillion, Bank of America said in a report on Friday that this is a clear sign that the market is maturing.
What this really means is that investors are starting to see the potential in these digital assets and are beginning to allocate more of their portfolios to them. This is a positive trend that is likely to continue throughout the year.
We predict that the price of different types of tokens will start to diverge in 2023. Utility and cash flow-based tokens will outperform meme and governance tokens.
The bank has been keeping a close eye on cryptocurrencies that power smart contract-enabled blockchain platforms, as they believe these currencies are exposing themselves to the same risks as growth stocks. In fact, these cryptocurrencies and small-cap liquid tokens have been leading this year’s rally.
Bank of America strategists are cautiously optimistic about growth, as strong economic data has delayed the timing of a recession and also “indicates the potential for reflation and additional rate hikes.”
Digital assets may come under pressure in a higher-for-longer rate environment, according to analysts Alkesh Shah and Andrew Moss. The rally in risk assets in January was partially driven by short-covering and mean reversion, which may not be as prevalent in a rate-hiking environment.
Shorting is a way of betting that a price will decline. An investor borrows a security and sells it in the hope that the price will drop. They then repurchase the security and return it to the lender. Mean reversion is a theory used in finance that suggests that asset prices tend to revert to their long-term mean or average level.