The Cryptocurrency Rebound is a Medium Reversion Rally

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Recent strength in the crypto market is likely due to a return to average values, Bernstein said in a research report on Monday, noting that bitcoin (BTC), the largest cryptocurrency by market capitalization, fell more 65% last year. Mean reversion is a theory used in finance that suggests that asset prices tend to revert to their average or long-term average level.

According to Bernstein, the crypto’s mean reversion still has room to run, so the broker advises caution on the downside to current levels. Bitcoin in its entire history has never had two consecutive years of negative returns, he added.

While recent news from crypto exchange FTX and crypto lender Genesis’ bankruptcy filing has been negative, the potential overhang in liquid crypto markets has receded, according to the report. Much of the expected selling pressure is on illiquid private crypto assets, he said.

The risk of an immediate sale in the Grayscale Bitcoin Trust (GBTC) has also receded as creditors and Digital Currency Group (DCG), which owns Grayscale, Genesis and CoinDesk, negotiate a settlement, and with all relevant situations currently ahead. courts. settlement, the public crypto markets seem to have felt some relief from any story of a forced sale.

However, this is unlikely to be the start of a sustained rally as this is more internal crypto capital (shelved stablecoins) being rolled out, analysts Gautam Chhugani wrote. and Manas Agrawal. We have yet to see any new capital allocations to support this rally.

Regulatory news from Hong Kong, which seeks to allow crypto trading licenses for certain assets, also contributed to positive sentiment in the crypto market, the note adds.

Read more: First Mover Asia: Bitcoin Surpasses $23,000 Before Pulling Back

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