Crypto Market Near-Term Upside Is Likely Capped: Bank of America

There is limited upside for cryptocurrency markets in the near-term, Bank of America (BAC) said in a research report Friday.

“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 is when investors buy assets that are rising and sell them when they appear to have peaked, using volatility to identify buying opportunities in short-term uptrends and then selling when momentum appears to be waning.

Bank of America says it expects cryptocurrency trading volumes to remain subdued, with retail investors remaining on the sidelines.

Traditional finance (TradFi) companies and tech firms continue to build blockchain applications focused on tokenizing demand deposits, repo settlements and bond issuance, the report added.