This year began at a time of peak bearish sentiment in crypto markets, but in the past 24 hours, cryptocurrencies have gained, with some out-of-favor coins climbing more than 20%, Bernstein said in a research report Monday.
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. The borrower can then pocket the difference if they are right or fork out the difference if wrong.
Investors had bet against liquid staking platform Lido on concerns that the next Ethereum upgrade will fail to introduce the scheduled ability to withdraw staked ether (ETH). Solana had declined on the fallout from crypto exchange FTX’s collapse, the report added. FTX and sister company Alameda Research held large amounts of solana on their balance sheets.
In the last 24 hours, forced buying by investors who had shorted the tokens – a so-called short squeeze – saw lido gain 21% and solana 24%, the note said. LDO is up 81% this year and SOL 67%, while ether has gained 11% and bitcoin (BTC) 5%, Bernstein said.
“Ether strength is all fundamentals,” analysts Gautam Chhugani and Manas Agrawal wrote. “ETH is the apex asset for the new cycle (whenever it commences).”
With the optimism around China reopening, Bernstein notes that bullish investors have been making the case that buying has been led by Asia, rather than the U.S., where sentiment is still muted in the aftermath of FTX.
The broker says this is potentially a “transitory narrative” given that crypto markets are generally more upbeat before the Chinese New Year, which starts Jan. 22.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.