BlockBay Capital portfolio update November 2022

BlockBay Capital portfolio update November 2022

The BlockWealth portfolios achieved a negative return of between the -17% and -22% in November.

The collapse of the major crypto exchange FTX caused panic in the crypto markets. Bitcoin fell from $21,000 to below $16,000, other cryptocurrencies were hit even harder. 

The collapse of FTX has caused millions of investors worldwide to lose several billions in crypto. The cause of the collapse of FTX is most likely due to poor corporate governance. FTX founder Sam Bankman-Fried started a cryptocurrency trading company called Alamada Research in 2017. Later he started FTX so that there was a close relationship between the two parties. In retrospect, it turns out that Alamada Research had access to FTX’s order book, which in fact allowed Alamada Research to trade with inside information and against FTX’s customers. A series of bad trades caused billions in losses at Alamada Research. These losses turned out to be covered afterwards with customer credits that were transferred from FTX to Alamada Research. In early November, the first stories came out that FTX may not have enough assets to cover customer funds. In addition, Binance announced that it would be selling a large position in the FTX crypto token that Binance previously had acquired. Due to the rumors, customers started to withdraw crypto from FTX, after which the house of cards collapsed because there was not enough liquidity available with FTX to process all withdrawals. FTX has filed for bankruptcy at the end of November with the value of the company plummeting from a whopping $32 billion to $0 over a 10-month period. Larger and respected investors have also lost heavily due to the fall of FTX. More details are slowly coming out about how it is possible that such a situation could have happened. In addition, the call for regulation, further transparency and an accelerated transition to DeFi (decentralized finance) will only grow.

The basic promise of crypto and blockchain technology is that it is possible to perform transactions in a decentralized, transparent and robust manner without the intervention of third parties. The vast majority of cryptocurrency transactions are currently conducted via central platforms. Decentralized platforms are already on the rise, this event will only accelerate the transition to decentralized platforms to deliver on the promise of cryptocurrencies and blockchain. For now, Kraken will also be used for wallet management and cryptocurrency custody. Should a better alternative arise in the future, that solution will be implemented.

The expectation is that (given some time) the prices of cryptocurrency will improve. Under this positive scenario, the collapse of FTX will serve as a wake-up call for the industry and it will emerge healthier and better. Until then, much of cryptocurrency prices are speculative, based on anticipated rapid growth of protocols. This growth has of course been given a huge setback with the demise of FTX. In addition, we have to keep in mind that it is still quite possible that there will be other players who will fall over. We expect volatility to remain in the upcoming months.