BlockBay Capital portfolio update January 2022

BlockBay Capital portfolio update January 2022

The BlockWealth portfolios achieved a negative return between -20% and -23% in January.

Cryptocurrencies suffered from a negative sentiment in global financial markets. Rising interest rates and high inflation caused the prices of technology companies in particular to fall sharply. This confirms the correlation between cryptocurrencies and stock markets. The growth of the cryptocurrency markets shows that cryptocurrencies are no longer isolated but are part of the larger (institutional) world. The market will remain unpredictable in the coming months, with the corona aftermath putting enormous pressure on global supply chains with a 7% inflation on paper as a result. Interest rates in Europe and the United States have risen by about 0.5% in the meantime, although the current interest rates of 0% in Europe and 1.8% in the United States provide limited support for savers.

The inflation target of central banks (2%) seems increasingly difficult to achieve. Whether inflation is temporary or not is the question for now as a price/wage spiral is lurking. Higher prices (due to inflation) will lead in case of a price/wage spiral to higher wages, which in turn will lead to higher prices with renewed inflation as a result. The enormous growth in the number of euros and dollars, which has arisen as a result of the stimulus policy of central banks shows impact on the inflation. The increased money supply is spent and causes the economy in combination with COVID-19 to overheat. Central banks have failed as the balance between the money supply and the real economy is gone. Central banks made low interest rates possible because in theory low interested rates causes money to be spent (rather than saved). Practice shows otherwise, more and more money is being saved, which has led to an enormous savings balance. The purchasing power of this savings balance evaporates due to inflation, effectively forcing consumers to invest.

Partly due to the high inflation, the investment case for cryptocurrencies is still here. The current annual inflation rate of 7% could easily continue in the coming years. In 3 years, a consumer loses 20% of purchasing power. The odds of a better return than -20% in the next three years are high for investments in equity, real estate and cryptocurrencies. In addition, a positive total return for a diversified investor is increased by investing a small part of his/her assets in cryptocurrencies. When it comes to investing in cryptocurrencies, there are increasing differences between cryptocurrencies. Bitcoin has unique monetary properties compared to normal euros and dollars and in fact has no competition because Bitcoin excels not because of superior technology but because of unique properties. Ethereum and cryptocurrencies such as Solana, Polkadot and Cardano are building blocks for the future and are more flexible with regards to new technological development.

The past month showed again that Bitcoin and cryptocurrencies are in the short term not immune to stress in financial markets. However, looking at the medium term shows that the market capitalization of all cryptocurrencies increased tenfold in the past two years and this despite the market capitalization being halved in the past 3 months. Global financial uncertainties will mean that the coming years will be fueled by volatility once again and that a similar scenario is possible once again.