The BlockWealth portfolios achieved a positive return of +9% in February.
Last month was dominated by the Ukraine war. The war created tensions and added further stress on global financial and crypto markets. Bitcoin, for example, fell -23% in the week before the war started (from $44,000 to $34,000). Towards the end of the month, Bitcoin rebounded at $43,200 in February, to end the month with a return of +12% in February.
The west announced a wide range of financial sanctions against Russia. In the wake of this, local cryptocurrency trading volumes in Russia and Ukraine (partly due to a collapsing Russian ruble) soared. This business question can also affect the price. A mild rest has now returned to financial markets. Central banks’ expectations regarding future interest rate hikes have been revised downwards due to the Ukraine war, despite the high current inflation. Tensions in Ukraine are causing further increases in energy and food prices for the time being and will mean that inflation will remain high for a longer period of time. With an interest rate of 0.5% and inflation of 7%, the real interest rate (nominal rate minus inflation) is still at an all-time low.
Savers meanwhile suffer a loss of purchasing power due to negative real interest rates. To avoid this guaranteed loss in purchasing power, investments may prevent this purchasing power loss. The cryptocurrency investment case therefore still remains intact. Underlying, the crypto ecosystem grows on an annual basis by many tens of percent when looking at the number of users, the number of transactions and the use cases. Also in the event of a further rise in interest rates (which in theory will be bad for riskier investments), the positive effects and further technological development will outweigh the negative effects. It is therefore quite possible that cryptocurrencies will soon be disconnected from macroeconomic markets again. Recently the correlation has been there, historically this is more often the case in falling markets for a period of about 2 months. In the coming period, cryptocurrencies may return to trading as a new and standalone asset class, thereby adding further value for diversified investors.