The HDMI version is what determines how much bandwidth you have available.
HDMI 2.0 has a max of 18GB/s bandwidth, which is why the Steam Machine has to do chroma subsampling to go above 4k@60Hz. HDMI 2.1 ups that bandwidth to 48GB/s, allowing higher resolution/refresh rate.
The physical hardware is HDMI 2.1 capable and can do that if the device is running windows, so this is entirely the HDMI Forum limiting the capabilities of the device because it's an open source device.
While the steam machine might not be able to run super demanding titles at 4k 120hz+, there's no reason it couldn't do that for lower demand titles like indie games or older games. The physical hardware is HDMI 2.1 capable and can use those higher resolutions/fps if the device is running windows, so this is entirely the HDMI Forum limiting the capabilities of the device because it's an open source device.