Bitcoin price is strongly rebounding and may reach a new high this year.

Recently, an authoritative market analysis report pointed out that the price of Bitcoin surged by 45% in February, breaking the $60,000 barrier for the first time since the fourth quarter of 2021, just 9% away from its all-time high.

Analysis suggests that this round of price increase is likely driven by the new launch of the US spot Bitcoin ETF attracting a significant inflow of funds, as well as market expectations for the Bitcoin halving event in April.

In February, when traditional assets showed mixed performance, the cryptocurrency market delivered impressive results. This is mainly due to the stable capital inflow from the new spot Bitcoin ETF and several positive fundamental developments.

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

From the perspective of absolute return and risk-adjusted return, Bitcoin and Ethereum were among the best-performing assets in February in both the cryptocurrency and traditional financial markets.

Despite the increased correlation between cryptocurrencies and traditional markets in recent years, the outstanding performance of major digital currencies in February once again highlights the diversification advantages of the crypto asset class.

For Bitcoin, the strong upward trend likely reflects, in part, the continued fund inflows into the newly launched US spot Bitcoin ETFs. From the launch on January 11 to the end of January, the 10 spot Bitcoin ETFs saw a cumulative net inflow of $1.46 billion. In February, the net inflow accelerated significantly, reaching $6 billion for the entire month. The estimated net inflow for the entire cryptocurrency ETP market in February was as high as $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, there has been a net outflow of funds from gold ETFs listed in the United States, which may indicate that investors are shifting from one "store of value" asset to another.

From the perspective of inflows into the spot Bitcoin ETF, with the current block reward rate, the Bitcoin network produces about 900 new coins daily, worth approximately $54 million (assuming an average price of $60,000 per coin). In April 2024, Bitcoin will face the "halving" event that occurs every four years, at which point the daily new supply will decrease to 450 Bitcoins, worth about $27 million.

In February, the daily net inflow of the spot Bitcoin ETF listed in the United States reached $208 million, far exceeding the current and post-halving new supply rate. This imbalance between the new demand and limited new issuance may have driven the increase in valuation.

Despite Bitcoin's strong performance in February, it still fell short of the second largest cryptocurrency by market capitalization, Ethereum (ETH), which saw a 47% increase that month. The market seems to be anticipating a significant upgrade to the Ethereum network on March 13. This upgrade aims to provide dedicated storage space on Ethereum for Layer 2, which is expected to reduce data costs and improve operational efficiency.

In addition, Ethereum may also benefit from other positive factors, such as the development of "re-staking" technology, the upcoming ETH Denver conference, and the prospects of ETH ETF approval.

The best-performing sub-sectors in February were utilities and services in the cryptocurrency space, rising by 53%. This category includes some tokens related to artificial intelligence (AI) technology, with certain projects achieving significant gains.

The cryptocurrency industry rose by 34% in February. Among them, the governance token of the decentralized exchange Uniswap appreciated significantly due to the platform's proposal to directly allocate a portion of the trading fees to holders of staked UNI tokens and delegated voting rights.

In February, the valuation of cryptocurrencies increased along with rising trading volumes and various on-chain indicators, particularly on the Ethereum network. For example, the average daily spot trading volume of ETH reached $5.8 billion in February, a new high since September 2021. The total transfer value on the Ethereum network also rose to its highest level since June 2022.

In addition, the total market value of stablecoins increased by $5.5 billion in February. In related news, stablecoin issuer Circle announced it will stop supporting USDC on the Tron blockchain. Currently, about 80% of USDC circulates on the Ethereum network, with only about 1% on Tron.

Driven by the inflow of Bitcoin ETF funds and various 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 Federal Reserve monetary policy and overall economic conditions can have a significant impact on the valuation of crypto assets.

If the macro market outlook remains optimistic, many favorable factors within the industry (such as Bitcoin halving and Ethereum upgrades) may drive token prices to rise further this year. Currently, the price of Bitcoin is only 9% lower than its historical high, so it is expected to set a new historical high later this year.

Conversely, an unfavorable macro environment may suppress valuation growth. In the fourth quarter of 2023, Bitcoin may benefit from the Federal Reserve's policy shift from raising interest rates to lowering them. If the central bank cuts interest rates in the coming months, it could weaken the dollar, thereby supporting the valuations of competitive assets, including Bitcoin.

However, the declining trend of inflation in the United States in January seems to have slowed down. If inflation remains high, the Federal Reserve may consider delaying interest rate cuts until later this year or 2025. Generally speaking, rising interest rates in the United States could benefit the strength of the dollar, which may not favor Bitcoin.

Analysis suggests that the most likely scenario is that U.S. consumer price inflation will continue to decline, ultimately prompting the Federal Reserve to cut interest rates. However, cryptocurrency investors should closely monitor the upcoming inflation report and the updated policy interest rate guidance at the Federal Reserve's meeting on March 20.