Bitcoin price skyrockets 45%, expected to reach a historic high this year

The recently released February market report indicated that the price of Bitcoin surged by about 45% in February, breaking the $60,000 mark for the first time since the fourth quarter of 2021, just 9% away from its all-time high.

Analysis indicates that this significant increase is primarily due to two factors: first, the large influx of funds brought by the newly launched US spot Bitcoin ETF; second, the market's expectation of the upcoming Bitcoin halving event.

In February, when traditional assets showed mixed performances, the cryptocurrency market delivered an impressive report card. This was mainly due to the steady inflow of funds into the new spot Bitcoin ETF, as well as a series of positive fundamental developments.

Currently, the main risks facing the valuation of digital assets may come from the Federal Reserve's monetary policy. The inflation data in February has risen again, which may delay the interest rate cuts, possibly extending into next year.

In terms of absolute return rates and risk-adjusted return rates, Bitcoin and Ethereum ranked among the top performers in February within both cryptocurrency and traditional financial assets.

The global bond market generally fell in February as inflation rebound weakened expectations for interest rate cuts by the central banks of the US and Europe. Most stock markets rose, with Chinese and other emerging market stocks performing the best.

Despite the increasing correlation between cryptocurrencies and traditional markets in recent years, the outstanding performance of major tokens in February once again highlights the diversification advantage of the crypto asset class.

For Bitcoin, the steady return rate partially reflects the continued inflow of funds brought by the newly launched US spot Bitcoin ETFs. From the launch on January 11 to the end of the month, the 10 spot Bitcoin ETFs saw a cumulative net inflow of $1.46 billion. In February, the net inflow accelerated significantly, reaching $6 billion for the entire month. The estimated net inflow for the entire cryptocurrency ETP in February is as high as $6.2 billion, which is more than double the monthly record since October 2021.

It is worth noting that since the launch of the spot Bitcoin ETF, gold ETFs listed in the United States have experienced net outflows of funds, which may indicate that investors are shifting from one "store of value" asset to another.

From the perspective of the capital inflow into the spot Bitcoin ETF, based on the current block reward rate, the Bitcoin network produces approximately 900 new coins per day, worth about 54 million USD ( assuming an average price of 60,000 USD per coin ). After the Bitcoin halving in April 2024, the daily new supply will drop to 450 Bitcoins, worth about 27 million USD.

In February, the average daily net inflow of the spot Bitcoin ETF listed in the United States reached $208 million, far exceeding the current and post-halving new supply rate. This imbalance between new demand and limited new issuance may have driven up valuations.

Despite Bitcoin's strong performance in February, it was still outperformed by the second largest cryptocurrency by market cap, Ethereum ( ETH ), which rose by 47% that month. The market seems to be anticipating the significant upgrade of the Ethereum network scheduled for March 13. Ethereum is moving towards a modular design concept, and over time, more activities will occur on the second-layer blockchain connected to the mainnet.

The upcoming upgrade will provide dedicated storage space on Ethereum for Layer 2 to accommodate this growth, aimed at reducing its data costs and expected to improve operational efficiency. Additionally, Ethereum may also benefit from other favorable factors, such as the focus on "re-staking" technology, the upcoming ETH Denver conference, and the anticipation of ETH ETF approvals.

The best-performing sector in February was the utilities and services cryptocurrency sector, with a rise of 53%. This category includes some tokens related to artificial intelligence (AI) technology, some of which achieved significant gains.

The financial cryptocurrency industry has risen by 34%. Part of the reason is the surge in the governance token of the decentralized exchange Uniswap. The platform generates revenue through trading fees, a portion of which goes to the Uniswap Foundation. On February 23, the governance head of the Uniswap Foundation proposed to directly distribute a portion of the fee revenue to holders of staked UNI tokens and delegated voting rights. If implemented, UNI tokens will receive a share of trading fees from one of the largest decentralized finance applications by trading volume.

The valuation in February rose alongside an increase in trading volume and various on-chain indicators, particularly for Ethereum. For example, the average daily spot trading volume of ETH in February reached $5.8 billion, a new high since September 2021. The value of all transfers on the Ethereum network also rose to its highest level since June 2022.

In addition, the total market value of stablecoins increased by 5.5 billion USD this month. In related news, stablecoin issuer Circle announced that it will stop supporting USDC on the Tron blockchain. About 80% of USDC is circulating on the Ethereum network, with only about 1% on Tron.

With the inflow of funds into Bitcoin ETFs and various supportive fundamental factors, the cryptocurrency market has performed strongly this year. However, an important lesson from the last crypto cycle is that macro factors such as Federal Reserve monetary policy and economic conditions can significantly impact the valuation of crypto assets.

If the macro market outlook remains optimistic, many favorable factors including Bitcoin halving and the upcoming upgrade of Ethereum may drive token prices further up this year. The price of Bitcoin is currently only 9% lower than its historical peak, so it is expected to reach a new all-time high later this year.

On the contrary, a less favorable macro outlook may suppress valuation increases. In the fourth quarter of 2023, Bitcoin may benefit from the Federal Reserve's shift from raising interest rates to cutting them. If the central bank does indeed lower interest rates in the coming months, it may weaken the dollar and support the valuation of assets competing with the dollar, including Bitcoin (.

However, the steady decline in U.S. inflation in January seems to have slowed or paused on certain indicators, leading the market to worry about rising inflation prospects. If inflation remains high, Federal Reserve officials may consider delaying interest rate cuts until later this year or 2025. In general, rising U.S. interest rates could be favorable for the dollar but unfavorable for Bitcoin.

Analysis suggests that the most likely outcome is that U.S. consumer price inflation will continue to decline, prompting the Federal Reserve to eventually cut interest rates. However, cryptocurrency investors should closely monitor the upcoming inflation report, as well as the updated policy interest rate guidance from the Federal Reserve's next meeting on March 20.

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