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Bernstein Explains Lido DAO and Solana’s Strong Rise

2023 has been a positive year for cryptocurrencies so far, with Bitcoin rallying over 5%, while many other cryptocurrencies have seen much more impressive gains. Bernstein analysts also questioned why the rally took place and whether it would continue. For example, Solana, which suffered more from the FTX crash than any other crypto, is up more than 75% year-to-date at Monday’s high of $17.45. SOL, which is currently down to $16.10, is still up over 60% since the beginning of 2023.

The performance of the Lido DAO is even more impressive. The coin gained 136% between January 1 and its peak of $2.26 earlier in the week, then corrected to $1.87, cutting that gain to 95%.

Referring specifically to the LIDO and Solana cases, Bernstein analysts say that “many of the cryptocurrencies that have risen sharply are the most heavily shorted.” Analysts noted that LIDO is plagued by concerns that the upcoming Ethereum (Shanghai) upgrade may not deliver the planned feature to withdraw staked Ethereum, contrary to initial expectations. As for Solana, they reminded that the cryptocurrency suffered more from the collapse of FTX than any other. FTX, along with its sister company Alameda Research, had invested heavily in SOL. In the note released on Monday, Bernstein pointed out that the rise was strengthened by the short position compression and stated that “mandatory purchases were made to close short positions in the last 24 hours”.

Also, “with optimism about the reopening of China, the bulls argue that the lead in buying is made by Asia rather than the US, where sentiment is still weak, with FTX (after its crash).” But this is likely a temporary factor, analysts say, as “crypto markets are generally more optimistic as the Chinese New Year approaches.”

Looking forward, Bernstein analysts advised investors to “read the blockchain” and take a step back, noting that “extremes in crypto tend to rise in both directions” and that “periods of great stress (…) are great times to form long-term positions.” Analysts therefore warned that “projects that cryptocurrencies will end in the ‘next few years’ are again at the extremes” and that these estimates do not take into account blockchain data, which shows that “developer activity remains strong.” Therefore, Bernstein analysts concluded that “2023 will be the year when the market begins to appreciate the utility of crypto and its potential for non-speculative applications,” adding that DeFi, gaming, social, branding and NFT-based commerce will lead this evolution.”

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