BlockBay Capital portfolio update January 2023

BlockBay Capital portfolio update January 2023

The BlockWealth portfolios achieved a positive return of around the 36% in January due to improved sentiment in both the crypto and financial markets.

With the good start of the new year, the bad investment year 2022 has now really come to an end. Risky stocks underperformed with extreme negative annual returns of around -50% for major tech companies such as Meta (Facebook), Amazon and Tesla. In addition, as a result of the increase in interest rates, US bondholders even had their worst year ever. The return of Bitcoin over 2022 was -62%, which means that the damage in hindsight is relatively limited if you take into account the extreme events of the past year such as the collapse of FTX, Celsius, BlockFi and the implosion of the Luna ecosystem. Bitcoin and crypto have repeatedly shown that it can stop over such developments and continue its long-term growth. It is quite possible that January 2023 will be the start of a new cycle. Since the beginning of Bitcoin (13 years ago), the price development of Bitcoin has been +130% per year with many highs and lows. The coming period will show whether this trend can continue.

Looking at the technology, the potential of blockchain is clear despite the price volatility. The financial world will eventually move to blockchain-based systems. Fraud cases such as Wirecard (€2 billion is missing) will no longer be possible. The question is not if we are going to integrate blockchain, but how we are going to get there and what needs to happen now. The final result of this process is also interesting. Eventually, anyone with a mobile phone will have access to decentralized finance (DeFi) applications that make it possible to conduct financial transactions 24/7, without an intermediary, at low cost and with global liquidity. Significant progress has been made in recent times in terms of transaction scalability and the tools available to programmers. Improved scalability has ensured that the costs of, for example, Ethereum transactions have fallen from a few dollars to less than 10 cents, with further development ensuring that transaction costs will move towards one cent. Improved programmer tools will allow for faster (and safer) launches of new projects and the emergence of artificial intelligence can also boost the quality of new applications.

The problem with current fintech companies (such as Mollie and Adyen) is that they are built on outdated and traditional financial systems. To use the true potential of blockchain and crypto, it is necessary to build a new financial system. How will this new digital future fit into the current monetary system of central and commercial banks? Central banks try to keep banking systems solvent and economies healthy by controlling interest rates and liquidity. When the ratios are wrong, money is either created or destroyed. So far things have gone well, the current monetary system runs on further growth of debt and credit and there is still economic growth. The larger the mountain of debt becomes, the more difficult it becomes for central banks to intervene effectively. In addition, the eventual blow will become greater as the size continues to increase. Extreme inflation cannot be ruled out in the future either. The purchasing power of fiat money (such as euros and US dollars) is only decreasing now and in the future. A digital, global currency (such as Bitcoin) in combination with working blockchain protocols can form the basis of an alternative monetary system.