Crypto Assets Market Report: Bitcoin Expected to Reach New Highs

The recently released February market report shows that the price of Bitcoin rose by 45% in February, breaking the $60,000 mark for the first time, just 9% away from its all-time high. This significant surge is mainly driven by two factors: the newly launched U.S.-listed ETF attracting a large influx of funds, and market expectations for the upcoming Bitcoin halving event.

In the context of traditional assets performing inconsistently, the crypto assets market delivered an impressive report card in February 2024. This is mainly attributed to the continuous influx of funds into the new spot Bitcoin ETF and a series of positive fundamental developments. However, the main risk facing digital asset valuations currently may stem from the Federal Reserve's monetary policy: February's inflation data rose again, which could delay the interest rate cuts until later this year or even longer.

From the perspective of absolute return rates and risk-adjusted return rates, Bitcoin and Ether ranked among the best-performing Crypto Assets and traditional financial assets in February. Although the correlation between Crypto Assets and traditional markets has strengthened in recent years, the performance of major coins in February once again highlighted the diversification advantages of the Crypto Assets category.

The stable returns of Bitcoin are largely attributed to the continuous capital inflow into the newly launched U.S.-listed spot Bitcoin ETFs. From their launch on January 11 to the end of February, these ETFs saw a cumulative net inflow of $7.46 billion, with a staggering net inflow of $6 billion in February alone. The estimated total net inflow for all crypto assets exchange-traded products (ETP) in February reached $6.2 billion, setting a monthly record high since October 2021.

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

From a supply and demand perspective, the Bitcoin network currently generates about 900 new coins daily, valued at approximately 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, valued at about 27 million USD. In comparison, the average daily net inflow of the US-listed spot Bitcoin ETF in February reached 208 million USD, far exceeding the new supply rate. This imbalance between demand and limited supply may have driven the increase in valuation.

Ethereum rose by 47% in February, outperforming even Bitcoin. The market seems to be anticipating a key upgrade to the Ethereum network on March 13. This upgrade aims to provide designated storage space on Ethereum for Layer 2, which is expected to reduce its data costs and improve operational efficiency. Additionally, the development of "re-staking" technology, the upcoming ETH Denver conference, and the prospects of ETH ETF approval also bring positive news for Ethereum.

The best-performing segments in February were the utilities and services in the Crypto Assets sector, which rose by 53%. This category includes tokens related to artificial intelligence (AI) technology, some of which achieved significant gains. The financial Crypto Assets sector also rose by 34%, partly due to the substantial increase in the price of the governance token of the decentralized exchange Uniswap.

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

With the support of Bitcoin ETF capital inflows and various favorable fundamental factors, the crypto assets 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, several favorable factors in the industry (such as Bitcoin halving and Ethereum upgrades) may drive token prices further up this year. Given that Bitcoin is currently only 9% lower than its historical high, it is expected to set a new historical high later this year.

Conversely, unfavorable macroeconomic prospects may suppress valuation growth. In the fourth quarter of 2023, Bitcoin benefited from expectations of the Federal Reserve's policy shift from interest rate hikes to cuts. If the Federal Reserve cuts interest rates in the coming months, it could weaken the dollar, thereby supporting the valuations of competing assets, including Bitcoin. However, signs of a slowdown in the decline of U.S. inflation in January seem to have emerged, raising market concerns about the inflation outlook potentially rising. If inflation remains high, the Federal Reserve may consider delaying rate cuts until later this year or 2025.

The most likely scenario is that consumer price inflation in the United States will continue to decline, ultimately prompting the Federal Reserve to cut interest rates. However, Crypto Assets investors should closely monitor the upcoming inflation report and the updated policy rate guidance from the Federal Reserve's meeting on March 20.

Overall, the Crypto Assets market showed strong momentum in February, with Bitcoin expected to reach new highs this year. However, investors should remain vigilant about the potential impacts of macroeconomic factors and closely monitor inflation trends and Federal Reserve policy directions.