The BlockWealth portfolios achieved a positive return of between the -8% and -10% in August.
August was another challenging month for crypto investors. After a good start to August, prices fell as a result of rising inflation and interest rates. Over the whole month of August, Bitcoin fell -13%, Ethereum did slightly better with a decline of -6%.
Ethereum is in for an important month, in September the blockchain will switch from Proof-of-Work and move to the energy-friendly Proof-of-Stake. With Proof-of-Stake, there is no need for intensive calculations by processors, reducing energy consumption by 99.9%. Such a transition required years of preparation, during which there were open doubts about whether it would succeed. Ultimately, the third and final test proved successful so that The Merge can take place. In the run-up to the event, Ethereum’s price has performed well against other cryptocurrencies with a long term positive outlook. Currently 14,600 Ether are issued daily, as a result of The Merge this drops to 1,600 Ether per day. In addition, a small amount of Ether is burned with every transaction, so that the supply of Ether is reduced. In the past month, an average of 1,225 Ether has been burned daily, which will drastically reduce the number of new Ether in circulation. As a result, there will also be less selling pressure, which in theory is favorable for the price of Ethereum.
The past period has been very volatile on the financial markets. After interest rates fell in July and August, interest rates have risen sharply again in the past month. The rise in interest rates is partly due to a still increasing inflation because there is a link between interest and inflation. Due to the high inflation and the low policy interest rates of central banks, the real return is considerably negative, which means that savers will have to deal with a significant loss of purchasing power. Central banks will raise interest rates even further to keep inflation in check. Higher interest rates lead to less spending and investments, so that ultimately the demand for goods and services decreases and that price increases can be slowed down. In the current economic climate, a recession seems inevitable, especially as energy prices explode. A recession can therefore be the solution to the inflation problem. However, central bankers are not very keen on interest rate hikes, which means that central banks are currently lagging behind the economic curve. In addition, a lot of money has been printed by central banks in recent years, which may have led to the high current inflation.