After an active morning, bitcoin BTC$87,786.94 stayed largely flat in the $87,500 area in U.S. afternoon trade, holding gains around the 2% over the past 24 hours. Altcoins, including ether ETH$2,962.03, XRP$1.9345 and solana SOL$128.18 showed similar upside action.

Crypto-related stocks were also seeing bounces after Monday's plunge, including a 3% gain for Strategy (MSTR) and a 1% advance for Coinbase (COIN).

Read more: Bitcoin bounces from Monday's worst levels, but sub-$80,000 may come next, analyst says

“Clients are positioned with cautious optimism," said Josh Barkhoarder, head of sales at FalconX. "In the short term, most expect crypto to remain range-bound until we see a clear catalyst, so they’re holding core bitcoin exposure and sitting on cash elsewhere."

BTC may benefit from rebalancing, analyst says

With year-end approaching, bitcoin may benefit from its sluggish performance compared to other asset classes through the quarter as asset managers rebalance their portfolios to maintain their mandated allocation, noted Vetle Lunde, head of research at K33.

Earlier this year, when BTC underperformed the S&P 500 index through the first quarter, it started the next with gains, according to Lunde. Conversely, when BTC outperformed equities in the second quarter, it booked declines in the beginning of the third.

So far in the fourth quarter, bitcoin has underperformed the S&P 500 by a whopping 26%, suggesting that a sizable rebalancing is be due.

"Fund managers with predetermined BTC allocation targets may adjust weights into year-end, potentially resulting in excess inflows during the final trading days of the year and into early January," Lunde continued.

Crypto traders hesitant

Despite prices stabilizing, market participants remain hesitant to take on new risk, K33's Lunde added.

Derivatives activity on the Chicago Mercantile Exchange (CME) remains near yearly lows, with BTC futures open interest hovering around 124,000 BTC, he wrote. On perpetual swap markets, funding rates hovered around the neutral rate with open interest showing little movement, signaling lack of short-term directional conviction.

Declining spot crypto trading volumes, down 12% through last week, also confirms that many traders remain reluctant to engage as the year is drawing to a close.