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Bank of America (BAC) stated in a recent research report that the cryptocurrency markets are unlikely to experience substantial growth in the near future, indicating limited upside potential.
“Low conviction, limited catalysts and outperformance year-to-date leave the digital asset sector stuck in a trading range with a challenging macro backdrop likely capping digital asset upside,” analysts Alkesh Shah and Andrew Moss wrote.
The bank says conversations with clients suggest that hedge funds are returning to token trading, “with momentum strategies likely benefitting to some extent from heightened volatility due to declining trading volumes.”
Momentum investing involves investors purchasing assets that are experiencing upward price movements and subsequently selling them when they appear to have reached their peak. This strategy relies on volatility to pinpoint favorable buying opportunities during short-term uptrends and selling positions when the momentum begins to weaken.
Bank of America anticipates continued low cryptocurrency trading volumes as retail investors continue to stay on the sidelines.
The report highlights the ongoing efforts of traditional finance (TradFi) companies and technology firms in constructing blockchain applications that revolve around the tokenization of demand deposits, repo settlements, and bond issuance.
