February 2024: Crypto Leaps Ahead
Research Team
Last Updated: 3/1/2024 | 11 min. read
Bitcoin’s price jumped 45% in February, breaking $60k for the first time since Q4 2021 and ending the month just 9% below its all-time high. In our view, the price appreciation likely reflects strong inflows into the new US-listed ETFs and anticipation of the halving of Bitcoin issuance scheduled for April.
From a Crypto Sectors perspective, the Utilities & Services Crypto Sector dominated other market segments. This sector includes a number of projects that may offer synergies with AI technologies, including Filecoin. The decentralized file storage service has expanded to computation functions and announced an integration with Solana.
Macro factors may be the main barrier to higher crypto valuations over the short-term. Inflation accelerated in February, casting some doubt on the potential for Fed rate cuts.
In a mixed month for traditional assets, crypto markets produced solid returns in February 2024, helped by steady inflows into the new spot Bitcoin ETFs and a variety of positive fundamental developments. At this point, the main risk to digital asset valuations may be Federal Reserve monetary policy: inflation perked up again in February, and any further acceleration could put off the start of rate cuts until later this year or beyond.
Bitcoin and Ether were among the best performing assets across crypto and traditional finance in February, on both an absolute and risk-adjusted basis (returns relative to volatility) (Exhibit 1). Global bond markets lost value during the month as a pickup in inflation dimmed hopes for central bank rate cuts in the US and Europe. Equity markets mostly gained, led by shares in China and other emerging markets. Although crypto has been more correlated to traditional markets in recent years, the performance of major tokens in February again underscored the diversification benefits of the crypto asset class.
Exhibit 1: Bitcoin and Ether outperformed many other major assets
Exhibit 2: Record net inflows into crypto ETPs
Crypto markets have delivered strong performance this year, supported by Bitcoin ETF inflows and a variety of fundamental positives. However, an important lesson from the last crypto cycle is that macro factors—like Fed monetary policy and the state of the economy—can heavily influence crypto asset valuations. If the macro markets outlook remains positive, the industry’s many tailwinds—including the Bitcoin halving and Ethereum’s coming upgrade—could point to further increases in token prices over the course of the year. Bitcoin’s price is now just 9% below its all-time high, so new record highs later this year may be within reach.
In our view, the most likely outcome is that US consumer price inflation will continue to fall, facilitating eventual rate cuts by the Fed. But crypto investors should monitor upcoming inflation reports (especially the CPI report on March 12 and PPI report on March 14) as well as updated policy rate guidance from the Federal Reserve at its next meeting on March 20.
Exhibit 5: Market pricing higher US inflation
[1] Source: Grayscale Research estimate based on Bloomberg data.
[2] Source: Bloomberg, “Gold’s Pain is Bitcoin ETF’s Gain in Store of Value Smackdown”, Eric Balchunas and James Seyffart, February 26, 2024.
[3] Source: Bloomberg, as of February 29, 2024.
[4] Restaking allows staked tokens to be repurposed to provide security for additional applications.
[6] For example, increases in token prices for Worldcoin, Bittensor, Akash, and Render could be partly related to a focus on AI themes.
[9] Source: Bloomberg, as of February 29, 2024.
[11] Source: DeFi Llama, as of February 29, 2024.
[13] Source: DeFi Llama, as of February 29, 2024.
[14] For example, the 3m annualized rate of the CPI excluding food and energy was +4.0% in January vs +3.3% in December. Source: Bloomberg.
[15] Especially “real” or inflation-adjusted interest rates.
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