Crypto rally in 2023: “Mean Reversion” or “Sustainable return?” Bernstein weighs

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Bernstein analysts have called the recent crypto rally an average return to the sector’s breakthrough lows in 2022.

What happened: According to Bernstein, crypto was the most controversial asset class of the year, suffering from several high-profile frauds, disclosures, and bankruptcies.

See also: Best Crypto Trading Strategies

Bitcoin BTC/USD is down more than 65% from its highs. By comparison, the S&P was down 19.4% and the Nasdaq Composite was down 33.1% for the same period. Some tokens, like Solana SOL/USD, were even harder hit by the drop, posting losses of over 95%.

In an analyst note, seen by Benzinga, analysts Gautam Chhugani and Manas Agrawal wrote that despite Genesis’ recent bankruptcy filing, the potential overhang in liquid crypto markets appears to have receded.

Analysts noted that most of the expected selling pressure came in the form of illiquid private crypto assets, rather than liquid crypto assets.

Does this rally have legs? According to Bernstein, the crypto mean reversion still has room to work and hence the broker recommends caution when bearish at current levels.

Mean reversion is a concept commonly used in finance that suggests that asset prices tend to revert to their long-term averages or average levels over time. This theory can be used to identify potential opportunities to buy when the price of an asset is below the long-term average and to sell when the price is above the long-term average.

We would be cautious to be bearish here. But is this the start of a new sustained rally? Unlikely. This is more internal crypto capital (shelved stablecoins) being rolled out. We have yet to see any new capital allocations to support this rally, the analyst’s note added.

Price Action: Bitcoin was trading at $23,083 up 1.45% in the past 24 hours, according to data from Benzinga Pro.

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