BlockBay Capital portfolio update April 2023

BlockBay Capital portfolio update April 2023
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The BlockWealth portfolios achieved a negative return of around the -1% in April.

This monthly update focuses on two aspects that are important for investors in cryptocurrencies.

  1. Technological development of blockchain and cryptocurrency
  2. Events of the past period and outlook for the coming period

Technological development of blockchain and cryptocurrency

A16z crypto is the investment branch of Andreessen Horowitz, they have been investing in blockchain since 2023 and have now invested approximately $8 billion. In an annual report, they looked at the development of blockchain and crypto from a technological perspective. There is always a lot of emphasis on the (volatile) prices of cryptocurrencies, they try to show the development of the blockchain ecosystem on the basis of 14 indicators. The three main takeaways from the report are as follows:

  1. The number of active (monthly) users of blockchain is currently at an all-time high of 15 million. This is a doubling in users compared to two years ago. The doubling is mainly caused by an increasing supply of apps, services and games on the blockchain. In addition, the number of transactions has increased by 50% in the past 2 years, partly as a result of the development of, for example, an Ethereum protocol, the transaction costs have also fallen considerably.
  2. DeFi (decentralized finance) and NFTs are on the rise again after an extreme drop in activity year-over-year. As speculation has cooled, it appears that there is more organic growth in these sectors due to an increase in loans, remittances, digital collectibles and games. DeFi and NFT ensures that you, as the owner of content (e.g. on Facebook, Instagram or Spotify), decide for yourself on which platforms you offer the content (web 3.0). The earnings also go to the publisher and not to a large extent to the tech companies. Web 3.0 is expected to continue to emerge in the coming years.
  3. The number of blockchain developers and published developments is on the rise. Developers provide new initiatives that in turn attract new users. The bull market of 2021 has caused a significant increase in developers, a large part of which has lingered in the past period. These developers set a new record of published smart contracts in the past month. A characteristic of crypto (open source and decentralized) ensures that parts of digital contracts can be used (and improved) by anyone. This gives you an exponential effect, which in finance is comparable to the interest on interest effect.

If you look beyond the volatility of crypto prices, you will see a price innovation cycle emerging, according to a16z crypto. The price innovation cycle means that higher prices lead to the launch of new ideas. This is because rapidly rising prices ensure that many people become acquainted with crypto and blockchain in a short time, which happened previously in 2017 and 2021. In addition to speculators, this also attracts new people who are genuinely interested in the potential of the technology and who eventually launch new initiatives.

Events of the past period and prospects for the coming period

In addition to the technological development of blockchain and crypto, it is of course still interesting to look at historical events and the prospects for the coming period.

  • The crypto market of 2022-2023 shows similarities with previous bad periods (2014-2015 and 2018-2019).
    • In 2018-2019, the price of Bitcoin was around $6,000, after which it fell sharply to $3,200 to stay there for about four months. In 2022, Bitcoin was at $28,000, after which it fell to $16,000 and then stayed there for several months also.
    • What is striking is that the declines are getting smaller in relative terms and that the recovery is also accelerating, which may indicate an increasing maturity of the markets.
  • Bitcoin historically has a price cycle of about four years.
    • The price cycle cannot be seen as separated from the halving of the new amount of Bitcoin coming into circulation, which takes place every four years. Due to the halving, the supply of Bitcoin decreases, if the demand remains the same, the price will have to rise to ensure a new equilibrium.
    • The next Bitcoin halving is scheduled for 11 months, in April 2024. If history repeats itself, Bitcoin gradually rises to around $35,000 in 2023, after which a strong rally occurs in 2024 with a calculated price of $148,000 (up by a factor of 4.2 in 2024). These calculations are based on historical average price developments.
    • Based on current prices, after the April 2024 halving, the supply of new Bitcoin will be reduced with approximately $400 million on a monthly basis, causing Bitcoin inflation to drop from 1.7% to around 0.85% on an annual basis. For comparison, the expected annual inflation rate of the US Dollar in 2023 is 6.4%.
  • After all the bad news of the past period (the collapse of Terra, 3AC, Celsius, BlockFi and FTX), the price of Bitcoin reacts less strongly to more bad news such as the bankruptcy of Genesis and concerns about DCG and Grayscale.
    • That being said, the price of Bitcoin went up during the period of the banking turmoil in the United States at the time of the collapse of the Silicon Valley Bank.
    • Unless a black swan event occurs, Bitcoin will no longer fall from its current level of approximately $29,000 to its lowest level in the past period ($16,000), creating a foundation for a possible new bull market.

An improvement in macroeconomic conditions, increasing confidence in Bitcoin (due to declining confidence in banks), the upcoming halving and further technological development are ingredients for a possible new period of price increases. At this stage of the market, it is important to be patient and to have an appropriate investment allocation to crypto and blockchain.