The bank has predicted that tokens which power smart contract-enabled blockchain platforms will outperform meme coins and governance tokens. This is due to the fact that these platforms provide more real-world use cases and are more secure due to the use of smart contracts.
Cryptocurrencies are off to a great start this year, with the token universe up 42% year to date to $1.1 trillion, Bank of America said in a report on Friday. This is much better than most had expected, with the market expected to grow even more in the coming months.
The report predicts that 2023 will be the year of token price divergence, with tokens that provide utility and a call on cash flows outperforming meme and governance tokens.
Cryptocurrencies that power smart contract-enabled blockchain platforms are viewed as growth assets by the bank, which notes that these cryptocurrencies and small-cap liquid tokens have led this year’s rally.
Bank of America strategists are cautious on growth, as strong economic data has delayed the timing of a recession and also “indicates the potential for reflation and additional rate hikes.”
Digital assets may come under pressure in the coming months as the market adjusts to the new higher-for-longer rate environment, according to analysts Alkesh Shah and Andrew Moss. The rally in risk assets in January was partially driven by short-covering and mean reversion, and with rates expected to stay higher for longer, growth may come under pressure, resulting in a decline in digital assets.
Shorting is a way of betting that a price will decline. An investor borrows a security and sells it in the hope that the price will drop. They then repurchase the security and return it to the lender. Mean reversion is a theory used in finance that suggests that over time, asset prices tend to revert to their long-term average or mean level.