Gray Encryption Report: Strong Performances of ETH, BTC, FIL, UNI in February
Grayscale Releases Latest Research Report
In addition to comparing the strong performance of various cryptocurrencies in February, the report also points out that the Federal Reserve’s interest rate cut schedule will affect the price trend of cryptocurrencies. Investors should pay attention to the upcoming inflation report and the policy rate guidance to be updated at the Fed’s meeting on March 20.
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Cryptocurrencies Outperformed Other Assets in February
Ether Outperformed Bitcoin in February
FIL and UNI Also Showed Strong Performance
Federal Reserve’s Interest Rate Cut Schedule Will Affect Price Trend
In February, the price of Bitcoin rose by 45%, breaking through $60,000 for the first time since the fourth quarter of 2021, ending the month only 9% lower than its historical high. Grayscale believes that the price increase may reflect the influx of funds from new US-listed ETFs and expectations for the halving of Bitcoin issuance in April.
Both Bitcoin and Ether were among the best-performing assets in February, whether in terms of absolute value or risk-adjusted returns relative to volatility. As inflation rebounded, weakening hopes for interest rate cuts by the US and European central banks, the global bond market declined this month. Most stock markets rose, with emerging market stocks leading the way. Although the correlation between cryptocurrencies and traditional markets has been increasing in recent years, the performance of major tokens in February once again highlighted the diversification advantages of crypto assets.
Despite bringing steady returns in February, Bitcoin was still surpassed by Ether (ETH), the second-largest cryptocurrency by market capitalization. ETH rose by 47% that month. The market seems to be anticipating the Ethereum network’s crucial upgrade, scheduled for March 13. Ethereum is pursuing a modular design concept, and over time, more activity will occur on layer 2 blockchains connected to the layer 1 mainnet. The upcoming upgrade will adapt to this growth by providing designated storage space on Ethereum for layer 2, with the aim of reducing its data costs and expectedly increasing its operational profit.
Ethereum may also benefit from other favorable factors, including the attention to “re-collateralization” technology, in which the leader in the field, Eigenlayer, raised $100 million from venture capital firm a16z this month, and the anticipation of ETH ETF approval.
The best-performing cryptocurrency category in February was utilities and services, which rose by 53%. This product category includes tokens related to artificial intelligence (AI) technology, some of which have achieved significant gains. While Filecoin (FIL) was not initially designed with AI applications in mind, Grayscale believes it has benefited from market interest in this theme. The project initially focused on decentralized storage but now includes smart contracts and computational infrastructure, which may have a synergistic effect with blockchain-based AI applications. On February 16, Filecoin announced its integration with Solana, providing a decentralized block history for the network. Filecoin currently dominates the decentralized data storage market with a market share close to 99%.
On the other hand, the financial crypto industry rose by 34%. One reason for the increase was the surge in governance tokens of the decentralized exchange Uniswap. The platform generates revenue through transaction fees, and on February 23, the head of the Uniswap Foundation proposed directly distributing fee revenue to UNI holders, leading to an increase in token price.
Grayscale believes that with the inflow of Bitcoin ETFs and various fundamental supports, the cryptocurrency market will perform strongly this year. However, macro factors such as Federal Reserve monetary policy and economic conditions will still affect the valuation of crypto assets. If the macro market outlook remains optimistic, many positive factors in the industry, including the Bitcoin halving and the upcoming Ethereum upgrade, may lead to further price increases this year. The price of Bitcoin is currently only 9% lower than its historical high, so it may set new historical highs later this year.
In the fourth quarter of last year, Bitcoin benefited from the Federal Reserve’s shift from interest rate hikes to cuts. If the central bank does indeed cut interest rates in the coming months, it may weaken the US dollar and support the valuation of assets (including Bitcoin) competing with the dollar. However, recently released inflation data has risen again. If inflation remains high, Fed officials may consider delaying interest rate cuts until later this year or 2025, which could be a major obstacle to increasing the valuation of cryptocurrencies in the short term.
However, Grayscale still believes that the most likely outcome is that US consumer price inflation will continue to decline, thereby promoting the Fed’s eventual interest rate cuts. However, cryptocurrency investors should still pay attention to the upcoming inflation reports (especially the CPI report on March 12 and the PPI report on March 14) and the policy rate guidance to be updated at the Fed’s next meeting on March 20.
FIL
UNI
Ether
Bitcoin
Grayscale
Federal Reserve
