The BlockWealth portfolios achieved a positive return of between the +8% and +10% in October.
Crypto markets showed partial recovery in October. Ethereum in particular had a good month with a price increase of +17%. Bitcoin’s price remained in the $19,000 and $21,000 range throughout October.
As a result, Bitcoin’s short-term volatility has recently decreased, making it currently even below the level of US stocks. Compared to equities, Bitcoin’s price also reacts less to the announcement of economic data or to decisions by central banks. This may be signs that the bottom has been reached.
The full-year 2022 returns for both Bitcoin and Ethereum are around -50% this year, which is in line with tech stocks. There are, however, large differences in the returns of tech companies, for example Meta/Facebook has a negative return of -72% this year. This has led to billions in market capitalization loss since the company had a market value of more than $1,000 billion 16 months ago, of which $250 billion is now left. There are also tech companies that have done well on the stock market. Twitter has risen by about +40% thanks to the acquisition by Elon Musk. What is striking is that Dogecoin, a crypto coin that Musk is personally a big fan of, has doubled in a week.
The influence of central banks on the prices of stocks, real estate and other assets has been enormous of late. In the aftermath of corona, a lot of money has been printed, which may have had an impact on the current extremely high inflation. Due to high inflation, central banks are raising interest rates, but the danger of a recession always hangs above the market. There is currently so much debt in circulation that high interest rates could prove fatal for some countries and companies. The power of central banks is only increasing and the prices of investments are becoming more and more dependent on the decisions of central bankers. The question is whether this is a sustainable situation in the future? The answer to this question is probably ‘no’. After all, as long as share prices and house prices rise, there is nothing to worry about and the party will continue, partly due to further money creation by central banks through the issuance of debt. In the new digital age, people have unlimited access to independent information. Those in power in authoritarian countries will lose power in favor of the people. Situations such as those in Iran, Russia and China are untenable in the long term.
The future will call for a new financial system that will share global democratic values. Blockchain as an emerging technology has provided an alternative in which everyone can participate and there is no central party making the decisions. Digitization will ensure that more and more people have access to a digital alternative. The financial system will be owned by the people, the influence of politicians on parts of the economy and trade will be less. A new financial system is in the future, so there are a number of issues that need to be resolved before there is a worthy alternative to the current system. Of course, both systems can co-exist. For a new financial system it is necessary that blockchains and cryptocurrency are first accepted by users. Scalability and risk are two of the most important issues that need to be resolved for this. The scalability will only develop due to technological progress, and the risks of crypto coins will also decrease, for example through the development of stablecoins or through further acceptance. Countries that embrace technological development will fare better than countries and economies that cling to traditional systems.
From a portfolio perspective, an investment in cryptocurrencies is still distinctive from asset classes such as stocks, bonds and real estate. Current interest rate hikes all have a direct impact on these asset classes. The price of bonds is calculated on the basis of interest rates, stocks are discounted cash flows and the value of real estate depends on mortgage interest rates. Bitcoin has no interest component and is therefore sometimes described as digital gold. Opponents of investing in Bitcoin indicate that this is a downside compared to other investment categories. In the current climate, this can be a positive point because Bitcoin can trade separately from other investments. Although it should be noted that this has not happened in the past year.