Economic Recovery, AI Revolution, and the Spring of the Crypto Market

Recently, the U.S. manufacturing sector has shown signs of recovery for two consecutive months, raising concerns in the market about rising inflation. At the same time, significant breakthroughs have occurred in the AI field, with a well-known AI company launching an astonishing text-to-video model, sparking a new wave of discussions about the AI revolution. Against this backdrop, the earnings report of a well-known chip company far exceeded expectations, briefly making it the third largest company by market capitalization in the U.S. stock market. The crypto market also welcomed the "Spring Festival red envelope", with Bitcoin prices breaking through the 61000 dollar mark, and the positive impact of ETFs on the encryption market is beginning to show results.

In early February, the U.S. Department of Labor released important economic data: Non-farm employment in January increased by 353,000, the largest increase since January 2023, far exceeding the expected 185,000. This employment data raised market concerns about rising inflation. Subsequently released data showed that the U.S. January CPI rose 3.1% year-on-year and 0.3% month-on-month, both higher than expected. The core CPI increased by 3.9% year-on-year and 0.4% month-on-month, also exceeding expectations. The market reacted strongly, with the Nasdaq falling 1.8% that day and the yield on ten-year U.S. Treasury bonds rising sharply.

The yield on U.S. Treasury bonds has been gradually rising since the end of January, closely related to the economic data performance at the end of last year and the beginning of this year. The market currently widely expects that the Federal Reserve may implement its first rate cut in June. A well-known investment bank has also adjusted its forecast, believing that the U.S. will only cut rates four times this year, instead of the previously expected five times.

The performance of the US economy is closely related to the manufacturing cycle. The latest released Markit Manufacturing PMI preliminary value shows that the data for February in the US is 51.5, higher than the expected 50.5 and the previous value of 50.7. This marks the first time since September 2022 that it has been above the threshold for two consecutive months. The number of manufacturing orders has also reached a new high since June 2022, indicating that the manufacturing sector is experiencing a strong recovery, which may signal that the US is entering a new round of inventory cycle, thus driving employment and inflation up.

Nevertheless, the market generally believes that the likelihood of the Federal Reserve continuing to raise interest rates is low. In terms of interest rate expectations, although the probability of a rate cut has decreased, the probability of a rate hike has remained at a low level. Currently, the development of the U.S. economy is accompanied by a certain degree of inflation, but from the performance of asset prices, inflation has not hindered the rise of stocks and crypto assets. The market remains optimistic about future rate cuts.

In the technology sector, a well-known AI company's text-to-video tool has become the hottest topic of the month. Multiple one-minute videos generated by this tool have gone viral online, with image quality, smoothness, and logical coherence comparable to that of manually produced videos. It is widely believed in the industry that the emergence of this technology heralds an impending transformation in the industry, which will completely change the traditional methods of video production, improve creative efficiency, and reduce production costs.

Even more surprising is the speed at which this technology has emerged, far exceeding expectations. Just over a year after the release of ChatGPT, such a high-quality video generation tool has already been launched. Although there may be some flaws in certain areas, the overall effect is astonishing, and these issues are expected to be gradually resolved through technological iterations.

At the same time, the latest financial report data from a well-known chip company also confirms the rapid pace of AI development. Its Q4 revenue reached $22.1 billion, a quarter-on-quarter increase of 22% and a year-on-year increase of 265%, exceeding analysts' expectations; net profit was $12.3 billion, a year-on-year increase of 769%; adjusted earnings per share were $5.16, higher than market expectations. The company expects Q1 revenue to reach $24 billion, far exceeding market expectations. After the financial report was released, the company's stock price surged over 16%, briefly making it the third largest company by market value in the U.S. stock market, second only to two major tech giants.

Another interesting phenomenon is that the investment preferences of the younger generation are changing. Data from a large wealth management group shows that the number of custodial accounts held by American teenagers (ages 13-19) continues to grow, with a strong preference for tech stocks represented by the "Big 7." This reflects that the new generation of investors is more inclined towards the high-growth technology sector rather than traditional high-dividend blue-chip stocks. Therefore, we have reason to believe that driven by AI, tech giants and even "new assets" like encryption assets may become mainstream investment varieties in the long term.

In the crypto market, the price of Bitcoin soared during the Spring Festival, starting a rapid rise from around $43,000 on February 8, peaking above $53,000, with a gain of 23.3%. By the 28th, Bitcoin continued to break through, reaching near $61,000. This seems to have become a "new custom" — for the past 9 years, buying Bitcoin around the Lunar New Year has typically yielded varying degrees of profit.

The recent surge in Bitcoin is primarily driven by two factors: first, a decrease in selling pressure from a well-known cryptocurrency trust fund. Although its holdings are still decreasing, the rate of reduction is marginally declining; second, the continuous inflow of funds into Bitcoin spot ETFs. As of the 26th, the 11 ETFs have seen a cumulative net inflow of $6.15 billion, with the value of held coins accounting for 3.81% of Bitcoin's total market capitalization, surpassing the amount of Bitcoin held by certain large exchange wallet addresses.

The speed of development of Bitcoin ETFs is astonishing. A certain asset management company's Bitcoin ETF broke through a transaction volume of 1.3 billion USD on the 26th, which industry analysts referred to as "crazy numbers." In addition to ETFs, a certain software company is also an important source of capital inflow into the Bitcoin market. This company has been continuously purchasing Bitcoin in large quantities, currently holding a total of 193,000 coins, with an average purchase price of about 31,544 USD.

The approval of the Bitcoin spot ETF has injected great confidence into the market, and the focus of market attention has shifted to when the Ethereum spot ETF will be launched. Currently, several institutions have submitted relevant documents for their Ethereum ETFs, with the most critical date being May 23 - the date when the regulatory agency will make a final decision on a certain company's Ethereum ETF. If the Ethereum ETF is approved, it will bring more traditional investors into the crypto market and may have a positive impact on the market.

It is worth noting that the market value of the Bitcoin ETF in the United States has exceeded that of silver, making it the second largest ETF asset class in the United States. However, many analysts believe this is not the end for Bitcoin. The founder of a certain company believes that Bitcoin has the potential to compete with asset classes such as gold, real estate, and even the S&P index, with its market value expected to increase further.

Finally, the market has been working to optimize the Bitcoin network to increase its functionality, such as adopting Layer 2 and inscription technologies. To balance innovation and value attributes, the industry recently released the Bitcoin L2 standard, which requires Bitcoin to be treated as a native asset, ensuring users have control over the underlying asset, and maintaining a strong reliance on the Bitcoin system. These standards help ensure Bitcoin's core position within the expanding network without affecting its value attributes.

Despite the resurgence of inflation, the market has reached new highs driven by the strong momentum of the AI revolution. Currently, the market is not concerned about further interest rate hikes, but is focusing on the specific timing of the first rate cut. Inflation has not hindered the rise in asset prices. As the selling pressure from a certain well-known encryption currency trust fund diminishes, the market is eager to see if Bitcoin can break its historical high.