BlockBay Capital portfolio update August 2023

BlockBay Capital portfolio update August 2023

The BlockWealth portfolios achieved a negative return of between the -12% and -10% in August.

Bitcoin started the month of August quietly with a stable price of around $29,000. Around August 17, the price of Bitcoin suddenly dropped to $26,000 due to panic selling in response to renewed interest rate fears in the financial markets. At 4.45%, the US 30-year interest rate reached its highest level since 2011. As a risky asset, Bitcoin moved along with, for example, the Nasdaq index, which was also down -6% at that point. Bonds also had a hard time due to the rise in interest rates.

Positive news towards the end of the month caused Bitcoin to rebound to $28,000 before turning in month-end gains to close at $26,000. The positive news was Grayscale’s court victory. Grayscale has had a Bitcoin fund on the market for years. This fund has been trading below its net asset value for quite some time, partly due to uncertainty regarding a Bitcoin ETF. The US regulator (SEC) has been dismissed by the court because the SEC had refused to convert the fund into a Bitcoin ETF. The court held that the regulator had not sufficiently explained why the company’s application had been rejected. At the same time, the US regulator postponed a number of decisions regarding the launch of new Bitcoin ETFs. Major parties such as BlackRock, WisdomTree and Invesco have pending applications to launch a Bitcoin ETF. A Bitcoin ETF matters because it gives Bitcoin further legitimacy, larger investors can access the ETF through existing channels. The ETFs can also be used as collateral, increasing the possibilities of Bitcoin.

For the coming period there are a number of interesting developments that should be kept an eye on.

  1. Inflow of new capital due to Bitcoin ETF approval
    An approval of the Bitcoin ETF is estimated to generate around $20 to $30 billion in new money inflows. This is not too bad on the total market capitalization of Bitcoin ($500 billion), but there are a limited number of Bitcoin available on exchanges for direct tradability (about 2 million units for a total of $52 billion). Price shocks can therefore be expected as soon as the regulator approves a Bitcoin ETF. If the ETF is rejected, nothing will change compared to the current situation, the upside is that the ETF will become available.
  2. Number of Bitcoin on exchanges continues to fall, long-term investors continue to buy more
    In 2.5 years, Bitcoin reserves on exchanges have dropped from 3 million units to 2 million units (out of a current total of 19.5 million Bitcoin). This development is not necessarily positive for the long-term price development, after all Bitcoin can also be sent back to the exchanges to be sold. Market participants have become more critical of holding cryptocurrencies at exchanges following developments in recent years (falling over of FTX, Celsius, etc.). The big advantage of Bitcoin is that everything is transparent due to the blockchain technology, so it is visible that currently about 40% of all Bitcoin has been stationary for more than three years at the same addresses. Three years ago this percentage was still 27%, confirming the picture that long-term Bitcoin investors are structurally buying more. The combination of the two means that there is less and less Bitcoin available for speculation.
  3. Launch of an Ethereum Futures ETF
    Ethereum is also subject to developments regarding an ETF. Ethereum is a futures rather than a spot ETF. The difference is that a futures ETF is based on derivatives and a spot ETF is based on the underlying (e.g. Bitcoin or Ethereum). The last deadline for the US regulator SEC for possible approval of the Ethereum Future ETF is mid-October. Two years ago, the Bitcoin Future ETF was approved, Bitcoin’s price rose by 60% in the following three weeks. The first requests for an Ethereum Spot ETF have also already been made.

The halving is another important moment for Bitcoin and the crypto market. Historically, the market has moved along four-year halving cycles, with the halving acting as a catalyst for price appreciation. The coincidence of these cycles, in combination with long-term trends and a Bitcoin ETF are events to look forward to.