BlockBay Capital portfolio update March 2022

BlockBay Capital portfolio update March 2022

The BlockWealth portfolios achieved a positive return of +10% in March.

Last month was dominated by a slight recovery in global financial markets. The main tensions with regards to the Russian invasion of Ukraine seem to have calmed down. However, the consequences are still visible in higher oil and gas prices. The prices of raw materials have risen extremely, partly as a result of economic sanctions against Russia. This resulted in an annual inflation of 11.9% for the Netherlands! The inflation figures further emphasize that the unlimited printing of money by central banks has not been without consequences. Consumers and savers in particular are the victims of the extreme devaluation of the euro or US dollar.

Looking at the positions in the portfolio, Terra is the positive outlier this year. The project focuses on providing price stability for cryptocurrencies. This is done through the affiliated stablecoin UST. A stablecoin is a coin whose value is stable and in that case is pegged to the US Dollar (1 US Dollar = 1 UST). Stablecoins have an important function within cryptocurrencies. Traders use stablecoins to take neutral positions and in addition, a stablecoin is of course suitable for making payments. This trend has seen the total supply of stablecoins grow from $8 billion to $180 billion in just 2 years. The problem with stablecoins is that they are often issued by a central party, partly because of this, doubts have arisen about the backing of stablecoins in recent years. Coverage is of course important to ensure that 1 stablecoin is equal to 1 US dollar. Terra is trying to solve the trust problem through the decentralized stablecoin UST. The stablecoin is not directly backed by cash money, but works by means of an algorithm that works together with the crypto coin Terra to maintain the link with the US dollar. The interesting thing is that (in addition to MicroStrategy and Tesla, among others) the foundation behind Terra has bought $1.5 billion worth of Bitcoin in recent weeks, to support the algorithm. Ultimately, the goal is to purchase $10 billion worth of Bitcoin so that the chances of success for the stablecoin increase. Data analysis shows that the foundation buys several thousand Bitcoin on days of price declines in particular. This also causes a further bottom for Bitcoin. The market demand for Bitcoin increases when the coin dips below $40,000, partly because larger parties such as Terra are active.

The total market capitalization of cryptocurrencies has now surpassed $2 billion again. The provisional top is still at $2.9 billion (November 2021) and the provisional bottom at $1.6 billion (February 2022 and March 2022). The outlook remains uncertain, especially as economic data is at historic (and unprecedented) levels. Inflation is extremely high, unemployment is low, central bank balance sheets are at historic highs and interest rates are (still) at historic lows. Central banks are in a difficult position, raising interest rates quickly could send the economy into recession. On the other hand, high inflation in combination with low interest rates causes an extreme reduction in purchasing power. It is an extremely complex issue for central bankers and politicians. On the other hand, Bitcoin (because of the predefined technology) provides a neutral option for market participants (including more and more larger companies and governments). Recently, the 19 millionth Bitcoin was created, there are only 2 million to go until the pie is literally divided. It will be extremely interesting to follow how Bitcoin in particular will perform in this historic environment, no doubt to be continued.