BlockBay Capital portfolio update February 2024

BlockBay Capital portfolio update February 2024

The portfolios achieved a positive return between +34% and +42% in February.

Bitcoin increased from $42,000 to $62,000 in February. This increase in the price of Bitcoin is mainly due to the successful launch of the Bitcoin ETFs.

Last month it was expected that around $1.5 to $2 billion in new capital would be invested in the ETFs. Ultimately, that amounted to $6 billion, despite an outflow of $2.8 billion in the Grayscale fund. Currently, the average daily inflow of Bitcoin ETFs is around $300 million per day. Thereby March is expected to be comparable to February in terms of inflow. The results are also impressive when viewed in Bitcoin. The 9 new funds have already purchased 400,000 Bitcoin, the old Grayscale fund is at a minus of 210,000 Bitcoin, so that on balance around 200,000 Bitcoin has been purchased by (longer-term) ETF investors.

In just two months, about 1% of the total Bitcoin amount (21 million units) has been collected by the ETFs. The vast majority of Bitcoin (approximately 75%) is owned by long-term investors, so only a limited number of Bitcoin is actually traded on the market. The upcoming halving (mid-April) will ensure that the number of Bitcoin that will enter into circulation annually will be halved from 328,500 Bitcoin to 164,250. This supply of new Bitcoin is not nearly enough to cover the demand for Bitcoin. There are days when the Bitcoin ETFs alone buy more than 10,000 Bitcoin. Over the past month we have seen that this has already caused a huge price increase. If the ETFs continue to grow at this pace, further increases in the Bitcoin prices cannot be ruled out. The further buying has now ensured that the all-time high price of Bitcoin was (briefly) broken at the beginning of March to around $69,000. This is the first time in 850 days (November 2021) that Bitcoin has reached a new all-time high.

Ethereum also achieved an excellent return in February (+47%). The return comes partly due to a rise in the overall crypto market, but also due to the anticipation of an Ethereum ETF in the United States. The applications for the Ethereum ETFs were made a while ago by a number of parties that also have a Bitcoin ETF (such as BlackRock). The latest deadline for the US SEC is mid-May, with the chance of approval by analysts currently estimated at 50%.

The recovery of the crypto markets comes after quite a few scandals in recent years (Luna/Terra, Celsius, FTX, Genesis). This has ensured that the market has been significantly cleared of fraudulent players. Allowing Bitcoin ETFs has created a huge increase in legitimacy. Since the start of BlockBay Capital in 2018, BlockBay Capital’s vision has been that Bitcoin/cryptocurrency is a (new) asset class. The total market capitalization of cryptocurrencies at the time was about $250 billion, but the market capitalization x 10 has now increased to about $2.5 billion. The investment thesis has remained valid in recent years: a relatively small allocation of total assets provides a valuable addition in the field of return and risk in the longer term. The potential of Bitcoin is now so widely supported that future prices of $250,000 / $300,000 will not be unthinkable or unexpected. Bitcoin’s total market capitalization is currently $1,300 billion. Microsoft is currently the most valuable company in the world with a market capitalization of $3 trillion. The market cap of gold is $16 trillion. It is impossible to compare Bitcoin with these assets, but this shows that Bitcoin is still relatively small despite the price increases.

The price gains of recent weeks also attract fortune seekers. What is striking is that there is once again a group that expects to earn a lot of money quickly and in a short time. To realize these possible profits, investments are made in speculative crypto coins (such as memecoins). This group seems to forget that the playing field of Bitcoin in particular has changed from (short-term) retail investors to (longer-term) institutional investors. For the latter group, most crypto coins are not interesting and certainly do not meet the investment policy of institutional investors.

Expectations for the coming period

Historically, Bitcoin’s price peaks about 8 to 12 months after breaking the previous all-time high. Data currently shows that the number of retail investors is still far from the peak of early 2021. For Bitcoin in particular, the ratio between retail (shorter term) and institutional (longer term) is shifting for the longer term. This is also a significant difference from previous cycles, where Bitcoin has been declared ‘dead’ and risen again time and time again. Larger investors who in the past had a 0% allocation of Bitcoin now have the opportunity to build up exposure fairly easily and through the trusted channels. A small allocation to total assets ensures a huge inflow into a (still) relatively small investment category. Retail investors are expected to have a limited impact on Bitcoin this cycle. This cycle is really driven by the Bitcoin ETFs, negative developments from that angle will have an impact on the price. For other crypto coins, it is expected that retail will have more influence on this. With the Bitcoin halving approaching and the possibility of an Ethereum ETF, there is plenty happening in the crypto field. Macroeconomic developments may also turn out to be positive. It is expected that central banks will cut interest rates later this year, and government debts will also continue to rise.