BlockBay Capital portfolio update July 2022

BlockBay Capital portfolio update July 2022
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The BlockWealth portfolios achieved a positive return of between the +20% and +38% in July.

After a bad period, there has been some recovery in the crypto market with the total market capitalization now above the $1,000 billion mark.

It is still a long way to go to new all-time highs, after all, at the beginning of November 2021 the total market capitalization was still $3,000 billion. After the market fell in the past period as a result of unrest in the financial markets (rising interest rates, inflation and declining economic growth), the decline was exacerbated by the bankruptcy of various (central) crypto parties. It appears that there has been a reset in which a number of parties have fallen and on the other hand traditional financial institutions such as BlackRock are going to offer Bitcoin to its institutional investors.

It is interesting to look further into the possibilities of cryptocurrency in the context of the developments of the past few months. Cryptocurrency and blockchain have the eternal goal of reducing reliance on central parties. This must be done through decentralization and pre-established rules that are captured by the blockchain. Compared to crypto banks, decentralized protocols ensure that there is no human subjectivity in, for example, the processing of financing (DeFi). Both parties agree to process transactions publicly on the blockchain, as opposed to traditional financing applications that take place behind closed doors. Despite the market crash, DeFi has performed well during the recent crash. An example of the proper functioning of DeFi is a loan with Bitcoin as collateral. When the value of the collateral reaches the liquidation value, the DeFi protocol will automatically sell the collateral to prevent a loss on the loan. This causes an immediate increase of Bitcoin in the market, with price drops as a result. Central crypto banks such as Celsius have made empty promises in the past and have taken too much risk with customers’ money. Celsius had several loans outstanding with both central and decentralized parties. The repayments of the decentralized loans have been given priority at Celsius to prevent them from being liquidated, after all, it is a code where there is no room for subjectivity. DeFi has recently shown that it can function well, the problem has been in central parties that acted subjectively à la Lehman Brothers.

Not only cryptocurrencies have shown good returns in July. Partly as a result of falling interest rates, other investments such as equity and bonds also performed well in the past month. An investment in cryptocurrency remains interesting because it adds value when the correlation with other investments is low (or even negative). In this way, the total risk of the portfolio is reduced and the expected return is increased. The correlation between Bitcoin and the stock market has decreased in the past period, in addition, the correlation with interest and inflation is lower than with stocks, real estate and bonds. On the other hand, we have seen that an approaching recession and further rising inflation could have a negative impact on crypto investors. A further recovery of the financial markets would be favorable again, whereby the coming period is expected to be wait and see until there is more clarity about interest and inflation expectations.