Crypto Surging As Bears Buy Back in and Bulls Hold: Bank of America

• The overall value of the cryptocurrency market has been on the rise in recent weeks.
• The comeback is linked to optimism after the Fed’s rate hike, Bank of America said in a note.
• However, a recession could lead to another sell-off in digital assets, BofA analysts warned.

The overall value of the cryptocurrency market has increased in recent weeks, with Bank of America analysts stating that it could be a sign that bears are starting to buy back in as bulls continue to “hold on for dear life”.

The rally comes as a brutal year for crypto investors heads into the second half of 2022, with the market facing a steep selloff that has wiped $2 trillion from the digital asset market since bitcoin peaked at $69,000 last November.

But investors spooked by the selloff may return, BofA analysts said in a note Monday. The total market capitalization of crypto rose 11% to $969 billion in the two weeks ended July 26, and the top five Tier 1 tokens, which include bitcoin, ethereum and Binance Coin, rose 17%, the Bank of America.

As of last week, the total value of the space was still down 56% from the beginning of the year, and the top 5 tokens were down 57%. But the recent change in pace signals optimism among investors is returning to the digital asset market.

“Idiosyncratic crypto risks spurred by the digital asset correction over the past ninety days appear to be discounted and investors are moving out of the sidelines as risk assets rise,” the bank’s analysts said in the note.

Investors also appear to be encouraged by the possibility that inflation may have peaked. After CPI data showed inflation reached 9.1% in June, the central bank set in motion another interest rate hike of 0.75 points last week. The jumbo interest rate hikes in June and July have led some to hope that the Fed’s inflation battle will begin to show results starting with the upcoming CPI report on August 10. Some commentators also feel that the central bank may be able to effect a “soft landing” for the economy, rejecting predictions of a moderate economic slowdown ahead.

But Bank of America analysts remain wary, warning investors that the crypto market remains fragile: “Our view is that risks associated with rising interest rates, inflation and a mild recession are likely to be discounted, but a severe recession could result in a new correction of risk assets. including crypto/digital assets,” the note said.

Analysts added that the crypto market fell by 20% twice since mid-May, showing the extreme volatility of the sector.