Grayscale Crypto Report: Strong Performances in February for ETH, BTC, FIL, UNI

Grayscale has released its latest research report, which not only compares the strong performance of various crypto assets in February but also points out that the Fed's interest rate cut schedule will affect the price trend of currencies. Investors should pay attention to the upcoming inflation report and the policy rate guidance to be updated by the Fed at the March 20 meeting.

Cryptocurrencies Outperform Other Assets in February

In February, the price of Bitcoin rose by 45%, breaking $60,000 for the first time since the fourth quarter of 2021, ending the month only 9% below its all-time high. Grayscale believes that the price surge may reflect a significant inflow of funds into the new U.S.-listed ETF and expectations for Bitcoin's halving in April.

Both Bitcoin and Ethereum were among the best-performing assets in February in the cryptocurrency and traditional financial markets, whether viewed in absolute terms or in terms of risk-adjusted returns relative to volatility. As global bond markets fell this month due to rising inflation weakening hopes of rate cuts by the U.S. and European central banks, most stock markets rose, with emerging market stocks leading the way. Despite the increasing correlation between cryptocurrencies and traditional markets in recent years, the performance of major tokens in February once again highlighted the diversification advantages of the cryptocurrency asset class.

Ethereum Outperforms Bitcoin in February

Although Bitcoin brought steady returns in February, it was surpassed by Ethereum (ETH), the second-largest cryptocurrency by market capitalization, which rose by 47% during the month. The market seems to be anticipating the crucial Ethereum network upgrade, Dencun, scheduled for March 13th. Ethereum is pursuing a modular design concept, with more activity expected on layer 2 blockchains connected to the layer 1 mainnet over time. The upcoming upgrade aims to accommodate this growth by providing designated storage space on Ethereum for Layer 2, with the goal of reducing data costs and thereby increasing operational profits.

Ethereum may also benefit from other favorable factors, including attention to "re-collateralization" technology, with industry leader Eigenlayer raising $100 million from venture capital firm a16z this month, and expectations for an ETH ETF approval.

FIL and UNI Show Strong Performance as Well

The best-performing 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 saw significant gains. Although 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 synergize with blockchain-based AI applications. On February 16th, Filecoin announced integration with Solana to provide decentralized block history records for the network. Filecoin currently holds a dominant market share of nearly 99% in decentralized data storage.

On the other hand, the financial crypto industry rose by 34%. One reason for the increase was the surge in the governance token of decentralized exchange Uniswap. The platform generates revenue through transaction fees, and on February 23rd, the governance lead of the Uniswap Foundation proposed directly distributing fee income to UNI holders, causing the token price to rise.

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Fed Rate Cut Schedule Will Impact Currency Trends

Grayscale believes that with Bitcoin ETF inflows and various fundamental supports, the cryptocurrency market is performing strongly this year. However, macro factors such as Federal Reserve monetary policy and economic conditions will still affect cryptocurrency valuations. If the macro market outlook remains optimistic, many positive factors for the industry, including the Bitcoin halving and the upcoming Ethereum upgrade, may lead to further token price increases this year. Bitcoin's price is currently only 9% below its all-time high, so there may be new highs later this year.

In the fourth quarter of last year, Bitcoin benefited from the Fed's shift from rate hikes to rate cuts. If the central bank does indeed cut rates in the coming months, it may weaken the dollar and support the valuation of assets competing with the dollar, including Bitcoin. However, recent inflation data trending upward again could lead Fed officials to consider postponing rate cuts until later this year or even 2025, which could be a major obstacle to short-term increases in cryptocurrency valuations.

Nevertheless, Grayscale still believes the most likely outcome is that U.S. consumer price inflation will continue to decline, ultimately prompting the Fed to cut rates. However, cryptocurrency investors should still pay attention to upcoming inflation reports, especially the CPI report on March 12th, the PPI report on March 14th, and the policy rate guidance update at the Fed's next meeting on March 20th.