BlockBay Capital portfolio update April 2022

BlockBay Capital portfolio update April 2022
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The BlockWealth portfolios achieved a negative return of between the -13% and -15% in April.

Global financial markets had a difficult month. The technology index Nasdaq fell -13% in April, the US S&P 500 lost -9% and bonds are having their worst year since World War II due to rising interest rates. It was also a bad month for the euro, as the currency lost -4.7% against the US dollar in April. Bitcoin returned -13% in euros in April, the US dollar of Bitcoin in April was -17.2%.

After several good years, the past few months have been tough for investors. Investing without a long-term vision is virtually impossible due to the daily volatility. It is the short-term price paid for long-term gains. History shows that losses incurred can in practice be made up quickly as the best trading days come after the worst trading days. The most recent example is the Covid crash of March 2020 where prices recovered in just a few months. This is partly due to the fact that future expectations are priced into current prices. Expectations can turn quickly. This could possibly happen in the coming months with interest and inflation rates as current expectations are that they will continue to rise in the coming period. In practice, these expectations can turn quickly, resulting in recovering prices.

Despite a higher risk profile, Bitcoin has delivered a better return this year than the Nasdaq (-19% vs -21%). The absolute return is disappointing, however the relative return is not that bad. Looking at the prices of Bitcoin, the cryptocurrency peaked in October 2021 with a price of $68,500 and reached a bottom at the end of February 2022 with a price of $34,500. Six months earlier, Bitcoin peaked at $64,800 and bottomed out at $29,800. The April bottom was $37,500, so it seems for now that Bitcoin is setting a higher floor and that the price is now at the lower end of the historical bandwidth. Looking ahead, cryptocurrency remains an interesting asset class for long-term investors, partly due to the high current inflation of 12% in the Netherlands. In order to prevent a loss of purchasing power, a return must be achieved that is above inflation. With the (still) low interest rates as a result of central banks that are still active with buying programs, this will be a difficult especially for bonds. Equity with a long-term average return of +8% will also offer insufficient protection. This may present opportunities for cryptocurrency where high returns are not uncommon. Over the past 10 years, crypto has grown to a market cap of $2,000 billion. Partly as a result of institutional investments, cryptocurrencies are now more mature and a serious consideration. The correlation of the recent months between traditional financial markets and crypto markets also shows that the same market participants are active in several areas, it is quite possible to quickly build up or reduce exposure. In the current economic situation, it is a major challenge to properly structure wealth, with investors taking action against the current high inflation to avoid further erosion of purchasing power. In the portfolio, cryptocurrency remains interesting, among other things because there is no direct link with rising interest rates (unlike bonds, real estate and shares).