Bitcoin price may hit a record high later this year

The recently released February report indicates that the price of Bitcoin may break its historical high later this year. Here are the main points of the report:

In February, the price of Bitcoin surged by 45%, breaking the $60,000 mark for the first time since the fourth quarter of 2021, only 9% away from its historic high. This significant increase may be attributed to the influx of substantial funds from newly listed ETFs in the United States and the market's anticipation of the Bitcoin halving event in April.

In February, when traditional assets showed mixed performance, the cryptocurrency market achieved solid returns. This was mainly due to the continued influx of funds attracted by the newly launched spot Bitcoin ETF and a series of favorable fundamental factors.

Currently, the main risks facing the valuation of digital assets may stem from the Federal Reserve's monetary policy. The inflation in February has risen again, which may delay the expectations of interest rate cuts later this year or even longer.

From the perspective of absolute return rate and risk-adjusted return rate, Bitcoin and Ethereum ranked among the best performers in February among cryptocurrencies and traditional financial assets.

As the rise in inflation weakened the expectations of interest rate cuts by the central banks of the US and Europe, the global bond market generally fell in February. The stock market, on the other hand, mostly rose, with Chinese and other emerging market stocks leading the gains. Despite the increasing correlation between cryptocurrencies and traditional markets in recent years, the strong performance of major tokens in February once again highlighted the diversification advantages of crypto assets.

For Bitcoin, the strong returns may partially reflect the stable capital inflow from newly listed spot Bitcoin ETFs in the United States. From the launch on January 11 to the end of the month, the 10 spot Bitcoin ETFs had a cumulative net inflow of $1.46 billion. The net inflow in February accelerated significantly to $6 billion. The total estimated net inflow for the entire cryptocurrency ETP in February reached $6.2 billion, 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 seen net outflows, which may indicate that investors are shifting from one "store of value" asset to another.

From the perspective of inflows into spot Bitcoin ETFs, according to the current block reward rate, the Bitcoin network generates about 900 new coins daily, worth approximately 54 million USD ( assuming an average price of 60,000 USD per coin ). After the Bitcoin halving in April 2024, the daily output will drop to 450 coins, worth about 27 million USD. In February, the average daily net inflow into the U.S. listed spot Bitcoin ETFs was 208 million USD, which far exceeded the new supply rate even before the halving. The 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 Ethereum, the second largest crypto asset by market capitalization, which rose 47% that month. The market seems to be anticipating the critical upgrade of the Ethereum network on March 13. Ethereum is pursuing a modular design philosophy, with more activities expected to occur on layer two blockchains connected to the mainnet in the future. The upcoming upgrade will accommodate this growth by providing dedicated storage space on Ethereum for layer two networks, aiming to reduce data costs and potentially increase operating profits.

The best-performing sectors in February were the utilities and services cryptocurrency sectors, with an increase of 53%. This category includes tokens related to artificial intelligence technology, some of which have seen significant gains. The financial cryptocurrency industry rose by 34%, partly due to the surge in governance tokens of the decentralized exchange Uniswap.

In February, the increase in valuation was accompanied by a rise in trading volume and multiple on-chain indicators, especially for Ethereum. Data shows that the average daily spot trading volume of ETH in February reached $5.8 billion, 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.

Additionally, the total market value of stablecoins has increased by 5.5 billion dollars this month. According to reports, stablecoin issuer Circle has 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 Bitcoin ETFs and support from several positive 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 the Federal Reserve's monetary policy and economic conditions can severely impact the valuation of crypto assets.

If the macro market outlook remains optimistic, many favorable factors in the industry ( including Bitcoin halving and the upcoming upgrade of Ethereum ) may lead to further increases in token prices this year. The price of Bitcoin is currently only 9% lower than its historical high, so it may reach new highs later this year.

In contrast, unfavorable macroeconomic prospects may suppress valuations. In the fourth quarter of 2023, Bitcoin may benefit from the Federal Reserve's shift from interest rate hikes to cuts. If the central bank indeed lowers rates in the coming months, it could weaken the dollar and support assets competing with the dollar, including Bitcoin valuations. However, the trend of declining inflation in the U.S. in January seems to have slowed or paused on certain indicators, raising market concerns about higher inflation prospects. If inflation remains high, Federal Reserve officials may consider delaying rate cuts until later this year or 2025. Generally speaking, rising U.S. interest rates may benefit the dollar and be detrimental to Bitcoin.

The most likely outcome is that consumer price inflation in the United States 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 rate guidance from the Federal Reserve's next meeting on March 20.