Amidst the strong month of February that witnessed Bitcoin boom By 45% and breaking the $60,000 barrier for the first time since November 2021, Grayscale, a leading cryptocurrency asset management company, issued a warning note. Analysts at Grayscale identify macroeconomic factors, particularly the specter of persistent inflation and the subsequent impact on Federal Reserve policy, as potential impediments to the continued rise in cryptocurrency values.
Stubborn inflation and its effects
Grayscale analysts highlight the critical impact of macroeconomic conditions on cryptocurrency valuations. Notably, they point to the recent acceleration in inflation as a major concern. This development reduces the possibility of the United States reducing interest rates Federal ReserveThis is a scenario that could dampen the potential for cryptocurrencies to increase in value.
Analysts underscore the key lesson learned from previous cryptocurrency cycles, demonstrating the significant impact of Federal Reserve monetary policy and general economic conditions on cryptocurrency asset valuations.
Federal Reserve Monetary Policy and Cryptocurrency Valuations
The Fed's reluctance to cut interest rates amid rising inflation could have a dual effect. On the one hand, this could boost the value of the US dollar, and on the other hand, it could negatively impact Bitcoin, and thus other cryptocurrencies. The greyscale commentary comes in the context of the US national debt rising at an alarming rate, with an increase of about $1 trillion every 100 days, which further complicates the inflation narrative.
Despite these challenges, Grayscale The forecast is somewhat pessimistic. The company expects US consumer price inflation to continue on its downward trajectory, which would eventually facilitate the Fed cutting interest rates. However, they are warning investors to remain vigilant and closely monitor upcoming inflation reports, including the CPI report on March 12, the Producer Price Index report on March 14, and interest rate guidance from the Federal Reserve at its next meeting on March 20.
Record inflows into cryptocurrency funds indicate strong interest
In contrast to the cautious stance on macroeconomic factors, February saw record inflows into cryptocurrency funds. Furthermore it, Bitcoin ETFs In the United States, it witnessed great interest, with net inflows reaching $6 billion for the month.
This increase in demand, especially in anticipation of the Bitcoin halving in April, underscores investors' growing interest in cryptocurrencies as a credible asset class. Even before the halving, the imbalance between new demand and limited new supply of Bitcoin is seen as the main driver behind the recent rise in valuations.
Meanwhile, Ethereum, the second-largest cryptocurrency asset by market cap, also saw notable gains of 47% during the month. Expect a significant upgrade to the Ethereum network and its implications for The second layer of the block chain Competencies contributed to achieving this positive momentum. Additionally, the Utilities and Crypto Services sector, which includes projects that may provide synergies with AI technologies, outperformed other market sectors, posting gains of 53%.
Read also: Cryptocurrency Mining (CIFR) rose 6% as Bitcoin mined exceeded 334 units in February
