The near-term outlook for cryptocurrency markets is limited, said analysts who highlighted low conviction and a challenging macro backdrop as factors hindering upside potential, according to a research report by Bank of America.
In the report, analysts Alkesh Shah and Andrew Moss stated, "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."
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The bank's conversations with clients indicate a resurgence of hedge funds in token trading, benefiting from momentum strategies driven by increased volatility resulting from declining trading volumes.
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Momentum investing, which involves buying assets on the rise and selling them when they reach their peak, relies on volatility to identify short-term uptrends and take advantage of buying opportunities before momentum fades.
Bank of America also predicted cryptocurrency trading volumes would remain subdued, with retail investors staying on the sidelines.
The report noted the ongoing efforts by traditional finance (TradFi) companies and tech firms to develop blockchain applications focused on tokenizing demand deposits, repo settlements and bond issuance.
While the report suggested a cautious outlook for cryptocurrency markets, it also acknowledged the continued interest and innovation in blockchain technology by established financial institutions and technology companies.
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