The BlockWealth portfolios achieved a positive return of 1% in February.
After a good start to the month, the market has fallen somewhat, mainly due to a further increase of interest rates. New inflation figures mean that it remains uncertain whether interest rate hikes by central banks will be sufficient in order to bring inflation back to the desired level. Inflation in the Netherlands, for example, rose (year on year) after declines in recent months in February, which shows that inflation is more stubborn. As a result, interest rates are expected to remain higher for a longer period of time, which is detrimental to risky investments such as cryptocurrencies and shares.
Historically, there is a relationship between available liquidity and returns on eg equities and real estate. After all, more money ensures that scarce assets (such as shares and real estate) become relatively more valuable. Despite the monetary tightening currently taking place in the United States and Europe, global liquidity has increased, mainly due to easing by the central banks of China and Japan. As a global asset, Bitcoin in particular may benefit further from increased liquidity in the coming months. On the other hand, the risks for, for example, a US dollar are increasing due to the increased interest rate and therefore interest payments. Due to rising interest rates and mounting debt, interest payments from the US government have currently increased from $60 billion in the fourth quarter of 2021 to $213 billion in the last quarter of 2022. The total budget of the US state in 2022 was $6.27 trillion , with which the interest payments are already 13.5% of the budget. This creates enormous complexity for the Americans, on the one hand high inflation is ‘good’ for debtors (because the debt becomes worth less), on the other hand high interest rates create an enormous burden. With the debt ceiling reached and the upcoming elections, inflation and interest rates will come under even more scrutiny.
In addition to macroeconomic developments, there are also many crypto-related events in the coming months that require attention in the coming period.
- Creditors of Mt. Gox are expected to receive a payout of around 143,000 Bitcoin and some other assets (total value around $4 billion) from March 10 through the end of September. Mt. Gox was one of the first Bitcoin exchanges to be hacked in 2014, about 10 years later creditors get back about ~20%. It is expected that there will be a limited price effect on Bitcoin as a result of the availability of these Bitcoins. It is unlikely that all Bitcoins will be sold (at the same time), on an average daily trading volume of $25 billion the total sales will be relatively limited.
- Ethereum will have an upgrade in April that will allow Ethereum that has been staked since 2020 to become available again for eventual sale. In terms of expectations, it is expected that about $ 2 to $ 4 billion can become available here for a possible sale, on an average daily trading volume of $ 8 billion, this is also limited, just like with Bitcoin, so that there will be no major impact expected here either.
- Increasing regulation. The American regulator has been active in recent times, particularly on ‘staking’ products offered by central parties. Silvergate, an American bank that has almost all major crypto parties as customers, is also in trouble. The most logical next step is for crypto parties such as Coinbase or Kraken to obtain a banking license themselves to ensure that entry and exit remains possible. The call for further decentralization of crypto (i.e. without intermediaries) is increasing, developments such as DeFi (decentralized finance) are also interesting in the context of further regulation.
Of course, a lot of attention is paid to the price development of crypto. Apart from the prices, there are (apart from the potential) underlying so many developments in the field of crypto, blockchain and web3, so that the future continues to look positive. Macroeconomic developments will also eventually be resolved, so that the seventh bull run (after the previous six bull & bear markets) is probably not far off.