BlockBay Capital portfolio update May 2022

BlockBay Capital portfolio update May 2022

The BlockWealth portfolios achieved a negative return of between the -25% and -28% in May.

Since November 2021, the crypto market performed badly. Last month was extreme with the implosion of Luna’s ecosystem.

The fall of Luna / Terra also impacted the rest of the crypto market. Bitcoin fell -30% in early May to the tentative low of $26,800 on May 12. Ethereum fell -40% over the same period and is recovering less compared to Bitcoin in subsequent weeks.

Luna’s ecosystem had a market cap of $65 billion, in a few days this market capitalization has completely disappeared. In addition to the cryptocurrency Terra, Luna’s ecosystem consists of the algorithmic stablecoin UST. The stablecoin has grown in the past year to a market cap of $19 billion. Investors had the opportunity to get 19.5% interest (in UST). Because of this, deposits increased rapidly due to the total amount of euros and US dollars investors exchanged for UST in order to get the high ‘risk free’ interest rate in this way. The link of UST with the dollar peg works through the crypto coin Terra. When UST falls below $1, Terra’s are sold and UST bought in order to bring the UST price back to $1 due to demand. This mechanism worked until May 5. At that time, UST lost its $1 peg, attempts to recover the peg by selling Terra and Bitcoin failed in extreme market conditions. As a result of the creation of the mechanism Terra went into a death spiral and Terra’s price fell from $85 to $0.0001 in just a few days due to an extreme due to an increase in the number of Terra in orbit. UST eventually fell 98% from $1 to $0.02. Ultimately, the Luna ecosystem is death in a few days, resulting in an investor return of -100%. The Terra community launched the Terra 2.0 blockchain of which old Terra investors received some new crypto coins. The ‘old’ Terra blockchain has been rebranded into ‘Terra Classic’. This month’s investment report includes both cryptocurrencies.

The total market cap of crypto is now $1.3 billion. Measured from the peak of $3 billion in November 2021, that’s a whopping -67% drop. The crypto market’s volatility resulted into declining asset prices over the past six months. Positive development in the current macroeconomic outlook will most likely benefit asset prices. The current outlook is negative due to the high inflation, rate hikes, quantitative tightening, high commodity prices and China’s Covid problems. Compared to other investments, cryptocurrencies have been severely punished, mostly due to these macroeconomic developments, positive surprises may ensure a rapid recovery of these dropped cryptocurrency prices.