Crypto Rally In 2023: 'Mean Reversion' Or 'Sustainable Comeback?' Bernstein Weighs In

Bernstein analysts have labeled the recent crypto rally as a “mean reversion” to the sector's decisive lows in 2022. 

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

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Bitcoin BTC/USD declined more than 65% from its highs. In comparison the S&P was down 19.4% and Nasdaq Composite was down 33.1% for the same period. Some tokens, such as Solana SOL/USD, were even more severely affected by the downfall, registering losses of over 95%. 

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

The analysts noted that most of the expected sell-pressure had been in the form of illiquid private crypto assets, rather than any liquid crypto assets.

Does this rally have legs? According to Bernstein, crypto mean reversion still has “room to run” and, therefore, the broker recommends exercising caution when being bearish at current levels.

Mean reversion is a concept commonly used in finance that suggests that asset prices tend to return to their long-term averages or mean 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 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 capital internal to crypto (sidelined stable coins) being deployed. We have not yet seen any new capital allocations to sustain this rally,” the analyst note added.

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

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