Historically the Chinese Luna New Year has corresponded with a digital assets rally but this February, the Year of the Dragon marked one of the best months on record for the digital asset market. Bitcoin added its largest monthly increase in price, in $ terms, opening the month at $42.6k and closing at $61.2k. Bitcoin and Ethereum dominated returns and narrative in February, with the total crypto market cap ex BTC and ETH adding 25.5% MoM, vs 43.8% and 46.5% for BTC and ETH respectively. The total market cap for digital assets crossed $2.2 trillion, a fairly remarkable rise considering this was hovering around $1 trillion as recently as October 2023.
Bitcoin perpetual futures funding rates have seen a significant surge, escalating from the low point of 10% Annual Percentage Rate (APR) in early February to the current rate of approximately 95% APR. Notably, platforms with a heavy retail user base, such as Binance, witnessed more marked increases in funding rates compared to those on the institutionally focused Deribit. This discrepancy suggests that major participants might have adopted a cautious approach amidst the recent bullish market trends. The pronounced rise in funding rates points to a possible overextension in the market from leverage, which can tend correct to sharply. It is important to acknowledge that, based on historical patterns observed in previous bull cycles, retracements of over 20% were common occurrences on the path to establishing new all-time highs.
Spot Bitcoin ETFs have ushered in a new era for the asset, with the newly listed products one of, if not the most successful ETF launches in history. The below chart from Citigroup shows the magnitude of flows to the BTC ETFs compared to the 2005 flows into the Gold ETF, with BlackRock’s iShares Bitcoin Trust growing to $10Bn in just seven weeks, the fastest of any ETF.
As we highlighted in our market update last week, we believe the upcoming Bitcoin halving (expected late April) and speculation of potential ETH ETFs will be a further catalyst for price appreciation for the two blue-chip assets. Bitcoin halvings occur approximately every four years or after 210,000 blocks have been mined, reducing the block reward for miners by half. The current block reward of 6.25 BTC will decrease to 3.125 BTC at the next halving. If you missed the update, the article is available here
As we’ve seen in previous cycles, as new capital flows into these leading assets on the back of the aforementioned events, more established capital within the crypto ecosystem begins to be allocated further out on the risk curve, fuelling an “Alt-season” where high-quality projects and their respective tokens begin to outperform. There has been a huge amount of investment and development over the recent bear market, and we are seeing new products being brought to market: Eigenlayers ETH restaking solution, Ethena’s interest-bearing stablecoin, Farcaster’s decentralised social media platform, to name a few. Further, Uniswaps “fee switch” proposal sets a positive precedent for protocol token holders earning a share of fees generated by respective networks, adding to the investment case for many Alt-tokens.
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