Author: Greythorn

introduction

Welcome to Greythorn's February 2024 market research report. As cryptocurrencies become increasingly important in finance, we will continue to provide readers with the latest trends and cutting-edge information on digital assets and blockchain technology.

Greythorn will continue to provide readers with monthly analysis reports on the cryptocurrency market, including detailed analysis of market trends, updates on regulatory developments, and macroeconomic factors affecting these digital currencies.

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Bitcoin Analysis

February market trends

A complex interaction of economic signals, regulatory actions, and market sentiment shaped Bitcoin’s market landscape in February. At the beginning of the month, at the Federal Reserve Open Market Committee (FOMC) post-press conference, Powell's tone changed significantly compared with previous meetings, no longer emphasizing the resilience of the U.S. banking system. This move caused a chain reaction in the financial market, including Different asset classes, including Bitcoin, have had different impacts.

Powell's comments meant a rate cut in March was unlikely, sending both stock and bond markets lower. Bitcoin's value fell from $43,600 to about $41,800, in contrast to the March 2023 banking crisis when Bitcoin prices rose and was seen as a safe haven in an unstable environment for the traditional banking industry.

This shows the characteristics of Bitcoin market behavior. It can align with broader financial markets as a risk asset, while in times of economic uncertainty it behaves as a safe-haven asset.

Despite the initial decline, BTC quickly rebounded, showing the strong demand for BTC today. This recovery has been significantly driven by continued interest from institutional and retail investors.

Environmental Concerns and Bitcoin Mining

The U.S. Energy Information Administration (EIA) has announced that Bitcoin miners in the United States must fill out a questionnaire detailing their energy consumption. A report released at the same time stated that Bitcoin mining accounts for approximately 0.6% to 2.3% of the country’s total electricity usage. The discovery sparked widespread discussion about the environmental impact of Bitcoin mining. However, it is worth noting that the report ignores two key aspects: First, more than half of Bitcoin mining operations use green, renewable energy. Second, the role of Bitcoin mining in improving grid stability and reducing pollution remains underappreciated.

Regulatory Developments and Legislative Backlash

Additionally, this month we’ve also seen a push back against regulatory overreach with U.S. digital asset legislation, such as bills introduced by Reps. Wiley Nickel and Mike Flood and Sen. Cynthia Lummis to prevent federal agencies from imposing excessive capital requirements on custody of crypto assets. , reflecting awareness of the importance of clear and fair regulations in promoting innovation and investment in the crypto space.

This legislative action challenges the U.S. Securities and Exchange Commission’s (SEC) 2022 SAB121 guideline, which requires banks to list the value of crypto assets under custody as a liability on their balance sheets and require corresponding capital reserves. Critics argue that this requirement is flawed because the assets do not belong to the custodian and should not be recorded as liabilities. If passed, the bill could have a significant impact on the crypto industry, allowing regulated banks to custody crypto assets, potentially boosting institutional investment in the crypto industry.

Price volatility, investor sentiment, liquidity, and institutional interest in cryptocurrencies

Sentiment toward Bitcoin remained firm in February despite regulatory and volatility concerns, as evidenced by results from the CoinShares Quarterly Fund Manager Survey, which showed investors continue to favor Bitcoin over other cryptocurrencies. The crypto asset class is growing in popularity among institutional investors, with Bitcoin leading the preference list.

While the improved liquidity in the Ethereum market has not directly benefited from ETF-related flows, significant inflows into the BTC spot ETF indicate that institutional interest and confidence in the crypto market is growing. This is further supported by the resilience of BTC holders, with 90% of BTC currently being held in addresses that have not yet spent BTC. This shows strong held belief.

As February progressed, Bitcoin price saw significant volatility, crossing the iconic $50,000 mark on the 14th, evidence of increasing buyer pressure and easing seller pressure. The release of January’s CPI data showed ongoing inflation challenges, initially causing a sharp drop in BTC prices. However, Bitcoin quickly broke away from traditional risk assets and quickly recovered and even hit a new high for the year, once again demonstrating that BTC can serve as a hedge against risk assets and economic uncertainty.

In addition, in the past February, there were signs that the launch of BTC spot ETFs had a positive impact on market liquidity. This is evident from the increase in BTC spot trading volume and the significant contribution of the United States to market depth. These trends indicate that BTC spot ETFs are having a significant impact on the market and that institutional participation is deepening as institutional interest grows, as shown by the larger average BTC trade size.

Ethereum market liquidity discussion in February

As the end of February approaches, Ethereum is also starting to attract a lot of attention. As the second-largest cryptocurrency by market capitalization, Ethereum has become the focus of much investment and analysis due to its recent poor performance compared to Bitcoin. However, this trend has changed recently, with several factors hinting at a potential breakout for Ethereum: it has been lagging Bitcoin in the past few months, the market is looking forward to the possible approval of a spot ETF within the year, and Ethereum is expected to A major upgrade is coming on March 13, which could impact its positioning in the market.

Bitcoin’s price breakout in late February

After a period of relative silence, Bitcoin enjoyed a major surge in late February, with the price topping the $60,000 mark, despite Ethereum’s gains. This momentum is mainly attributed to the surge in ETF investment and the active participation of Asian investors. For example, BlackRock’s IBIT product has a single-day trading volume of nearly $1.3 billion. While this does not entirely represent net inflows, a significant portion likely represents new investment.

It is worth noting that factors such as ETF investment have made this market cycle particularly prominent and are expected to consolidate the market foundation. Any price correction is likely to be seen as an opportunity for investors of all types to enter the market, who believe that the upside has not yet been completely missed.

Equally important, even taking into account Bitcoin’s price surge, Bitcoin’s trading volume over the weekend, relative to its total trading volume, was still only half of what it was six years ago.

On-chain analysis

In February, supply in the stablecoin space rose sharply. This development is well ahead of the market’s normal fluctuations and marks a new level of investor confidence in the cryptocurrency space, which is reflected in a considerable amount of new capital flowing into the market.

As Bitcoin approaches all-time highs, public curiosity about it has increased significantly. Google search trend data shows that search volume for "Bitcoin" has reached its highest point since June 2022.

When comparing open interest in Bitcoin futures on CME to other exchanges, CME’s dominance shows strong interest from U.S. institutional investors. Currently, CME leads the way in open interest in Bitcoin futures, even surpassing Binance, indicating increased institutional participation. However, this trend does not extend to Ethereum, where CME ranks only fifth in the Ethereum futures market.

Despite a slow start to 2023, Ethereum has quietly staged a remarkable rebound, with year-to-date performance significantly ahead of Bitcoin, Solana, Avalanche, and leading second-layer solutions such as Arbitrum and Optimism.

Investments in all Bitcoin spot ETFs increased, setting an unprecedented record for the ETF industry in the first few weeks of the year.

Considering the inflow of new funds, Bitcoin appears to be embarking on a new phase. Currently, funds contributed by short-term investors account for 35% of the total realized value.

Despite the current positive market trends, short sellers continue to bet on a bearish market and are therefore facing liquidation of their opposite bets. It seems that bears are not paying much attention to on-chain indicators.

Over the past week in particular, funds that initially flowed to Sui and Solana at the beginning of the month appear to have started flowing back into Ethereum.

Pandora NFTs are rebounding, which means ERC404 may be here for the long term. Meanwhile, the Pudgy Penguins NFT remains strong with a floor price of 20 ETH. However, the famous series Sappy Seals and Kanpai Pandas are absent, and the value of both has also increased significantly, with the base price of Seals exceeding 1.7 ETH and the base price of Pandas exceeding 2.5 ETH.

Disclaimer: The cryptocurrency ecosystem is vast and constantly evolving, with numerous indicators of concern on a daily basis. This overview is intended to highlight selected monthly metrics for brief insight and is not intended to be a comprehensive report.

Selected Highlights

• MicroStrategy Bitcoin portfolio reaches $12.4 billion as Bitcoin crosses $60,000 mark.

• The U.S. Securities and Exchange Commission (SEC) has charged the founder of HyperFund in a $1.7 billion fraud.

• Tether posted a profit of $2.9 billion in the fourth quarter and boosted its reserves to $5.4 billion.

• FTX suspended its restart plan and promised to repay user funds in full.

• Celsius Network went bankrupt and began distributing more than $3 billion in assets to creditors and creating new Bitcoin mining companies.

• Ethereum has reached an important milestone, and 25% of ETH has been pledged.

• Bitcoin mining difficulty breaks through the 80 trillion mark, a new high.

• The cumulative trading volume of spot Bitcoin ETF exceeds 50 billion US dollars.

• The Ethereum Dencun upgrade was successfully deployed on the Sepolia test network, and the main network is planned to be launched.

• Harvest Fund Eyes First Hong Kong Spot Bitcoin ETF.

• Bitcoin mining company GRIID makes its debut on Nasdaq.

• Uncorrelated Ventures launches $315 million fund to focus on startups in encryption and software fields.

• Vitalik Buterin focuses on the synergistic prospects of cryptocurrency and artificial intelligence to support a new generation of leadership.

• Polygon Labs is laying off 19% of its employees as part of its organizational restructuring.

• The account of Ripple's co-founder suffered a $113 million security breach, causing the price of XRP to fall.

• The total pledge value (TVL) of EigenLayer exceeds US$6 billion, and the deposit limit has been increased accordingly.

• Kraken expands its European business and gets Dutch license approval.

• Binance decided to delist Monero (XMR), sending the price down 15%.

• The Solana network is back up and running after a five-hour downtime.

• Frax Finance launches the second-layer network Fraxtal.

• Ethereum NFT transaction volume is approaching annual highs.

• Thailand announces exemption from VAT on cryptocurrency gains.

• OKX expands to Argentina and launches exchange and wallet services.

• Coinbase’s fourth-quarter earnings exceeded expectations, and trading revenue increased significantly.

• PlayDapp lost $290 million in tokens in a double security breach, Elliptic provides data support.

• Pudgy Penguins NFT surpasses Bored Ape Yacht Club in historic floor price flip.

• The unlocking of Starknet tokens has sparked controversy among investors and the community.

• Court approves Genesis’ sale of $1.3 billion worth of GBTC shares.

• Ripple expands its regulatory capabilities with the acquisition of Standard Custody.

• FTX received approval to sell $1 billion worth of Anthropic shares.

• Circle ends USDC support on TRON network to enhance risk management.

• AI cryptocurrency prices surge after OpenAI releases Sora text-to-video generator.

• Trump softened his stance on Bitcoin on the campaign trail, signaling open acceptance.

• Gemini reached a settlement with New York regulators and agreed to return $1.1 billion in user funds.

macro analysis

China Market Volatility and Regulatory Response

At the beginning of February, the Chinese stock market experienced a significant decline. The CSI 1000 Index plunged nearly 9% during the trading session, and 99% of listed companies suffered losses. The more selective CSI 300 Index was not spared, also suffering a 2% decline.

In response to the rapid decline in the stock market, the China Securities Regulatory Commission (CSRC) moved quickly to stabilize the market, promising to crack down on "abnormal fluctuations" in stock prices and inject more medium- and long-term funds into the market. This intervention prompted a significant recovery in the market; the CSI 1000 Index rebounded strongly, recording an increase of nearly 7%. The rebound helped the CSI 300 close with modest gains and trimmed losses for the CSI 1000, although it still closed with a 6% loss, marking a year-to-date loss of nearly 30%.

In addition, the China Securities Regulatory Commission took additional steps to stabilize the market, implementing stricter short-selling rules, banning some quantitative hedge funds from executing sell orders, and instructing other funds to maintain their stock positions.

Authorities also announced Wu Qing, known for his strong stance against financial risks and corruption, as chairman of the China Securities Regulatory Commission. Wu Qing once managed the Shanghai Stock Exchange.

It is also important to remember that China's ability to use monetary stimulus may be limited by the fragility of the yuan and inflation risks. Interest rate cuts could exacerbate these problems and negatively impact banks' profitability. Fiscal stimulus measures are also constrained by high local debt levels.

Despite these challenges, Chinese investors are increasingly turning to cryptocurrency assets with interest. The expected launch of a Bitcoin ETF in Hong Kong could make this transition easier to achieve.

U.S. Economic Outlook: Loose Policy and Inflation Concerns

The Federal Reserve's latest survey, the Senior Loan Officer Opinion Survey (SLOOS), shows banks are beginning to ease lending. This easing trend is also reflected in the Chicago Fed's Financial Conditions Index, which shows the loosest financial conditions since November 2021. This shift could herald changes in the way the economy is managed, especially with so much uncertainty currently surrounding it.

In contrast, inflationary pressure is gradually increasing. Reports from the Institute of Supply Management (ISM) and the Bureau of Labor Statistics paint a picture of rising costs for businesses and workers alike. The latest data from the ISM shows that business costs have risen at a rate not seen since 2012. At the same time, wages and labor costs have risen, raising the alarm about inflation.

Employment data further demonstrated this trend, with significant increases in average hourly earnings and unit labor costs adding to inflation concerns.

These mixed signals have led to market reconsideration of recent interest rate cuts. The rise in the yield on the U.S. 10-year Treasury note reflects the market's reaction to these economic signals, especially concerns about rising inflation in the services sector and the Federal Reserve's focus on persistent inflationary trends.

So we're in a tricky situation right now. On the one hand, as loan conditions are relaxed, the economy has gained more room for activity. But on the other hand, rising inflation does raise substantial concerns. This balancing act between encouraging growth and controlling inflation illustrates the complexity of the current economic situation.

Separately, the Congressional Budget Office (CBO) released a report with some worrying predictions for the U.S. economy over the next decade. The government will soon spend more on interest on its debt than on defense, and by 2034, those interest payments will exceed the entire budget deficit in 2023, the report said. At the same time, U.S. debt relative to the economy may be twice what it has been in decades. The CBO also predicts that rising borrowing costs could slow economic growth and exacerbate debt problems.

However, concerns about the rising cost of insuring U.S. debt have led to growing interest in cryptocurrencies as an alternative to conventional currencies. This suggests that the U.S. dollar may lose value relative to solid investments like gold or Bitcoin.

On February 14th, we witnessed the January inflation report, and indeed, inflation in the United States increased. The market reacted strongly, with the Nasdaq down 1.8%, while the S&P 500 and the Dow Jones Industrial Average both fell nearly 1.4%. Bond rates such as the 10-year Treasury note quickly rose by 15 basis points. Bitcoin initially fell along with stocks and bonds, but quickly rebounded.

Global Economic Overview

• Japan's economy has entered a technical recession, with gross domestic product (GDP) falling in the fourth quarter, raising concerns about the world's third-largest economy.

• Britain is also facing recession, with the economy shrinking more than expected in the fourth quarter, pointing to widespread economic difficulties across major economies.

• The EU's fourth-quarter GDP growth was almost zero, narrowly avoiding contraction. With growth forecasts for 2024 revised downwards, the European Union almost faces recession, exacerbated by Germany's weak economic outlook.

• The European Central Bank is managing expectations for a rate cut, stressing that more data is needed before it can consider easing policy. This caution contrasts with the euro zone's economic challenges, such as inflation and the need to adjust interest rates, illustrating the tricky balancing act for central banks in uncertain economic times.

• Nigeria has taken steps to prevent the devaluation of its currency, the naira, by limiting access to cryptocurrency exchanges to reduce capital outflows and speculative trading.

Conclusion

Even with some uncertainty in the broader economic environment, February marked a period of significant success for Bitcoin and the broader cryptocurrency market. The crypto industry appears to be entering an exciting phase of expansion, with a number of compelling narratives emerging that promise to establish a strong foothold for growth in the coming months. To help you stay abreast of these developments, follow us at Greythorn on Medium and X for comprehensive insights into the evolving crypto landscape.

Disclaimer

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