The price of Bitcoin settled around $87,500 in U.S. afternoon trading on Tuesday, up 2% over the past 24 hours, following an active morning. Alternative cryptocurrencies like Ethereum, Ripple, and Solana also saw similar gains, while stocks linked to cryptocurrencies recovered after a decline on Monday, with MicroStrategy shares up 3% and Coinbase up 1%.
Vitley Lundy, head of research at K33, noted that Bitcoin's relative underperformance compared to stocks this quarter may lead to rebalancing-driven buying as January approaches.
As the year draws to a close, Bitcoin may benefit from its relatively slow performance compared to other asset classes during the quarter, as asset managers rebalance their portfolios to maintain pre-defined allocations, Lundy explained.
Earlier this year, when Bitcoin lagged behind the S&P 500 index in the first quarter, the next quarter began with gains. Conversely, when it outperformed stocks in the second quarter, it recorded declines at the beginning of the third quarter.
So far in the fourth quarter, Bitcoin has lagged behind the S&P 500 index by a massive 26%, indicating that a significant rebalancing is coming.
Lundy added: "Fund managers with pre-defined allocation targets for Bitcoin may adjust their weights as the year ends, potentially leading to additional flows during the last trading days of the year and the beginning of January."
Despite stable prices, traders in the cryptocurrency market remain hesitant to take on new risks, Lundy added. Derivatives activity on the Chicago Mercantile Exchange remains close to its annual lows, with open interest in Bitcoin futures hovering around 124,000 Bitcoins. In perpetual swap markets, funding rates hover around the neutral rate with little movement in open interest, indicating a lack of short-term directional conviction.
The 12% decline in spot trading volume in cryptocurrencies last week also confirmed many traders' reluctance to participate as the year ends.
Josh Parker, head of sales at Falcon X, said: "Clients are positioning themselves with cautious optimism. In the short term, most expect cryptocurrencies to remain within a range until a clear catalyst appears, so they maintain foundational exposure to Bitcoin and sit on liquidity elsewhere."
