BlockBay Capital portfolio update September 2023

BlockBay Capital portfolio update September 2023

The BlockWealth portfolios achieved a positive return of around the +5% in September.

Other asset classes (such as stocks) performed much less last month. The Nasdaq and the S&P 500 fell -6% and -5% respectively. Bonds also had a hard time in September due to further rising interest rates. Longer-term bonds achieved a negative return of -5%.

The story of the past few weeks has been the further increase in interest rates. After all, the American 10-year interest rate has risen from 0.7% to 4.8% currently since the start of the corona crisis. This is the highest level for interest rates since the 2007/2008 financial crisis. The increased interest rates will pose enormous challenges in the United States. The United States need to refinance $7.6 trillion in debt in the coming year. After years of low interest rates, this will now be refinanced at a higher new interest rate, which will cause the US government’s interest costs to rise sharply. The interest costs are ultimately paid by taxpayers, which will leave less money for, for example, healthcare, social security, infrastructure and education. The American debt has also been on the rise since the lifting of the American debt ceiling. In 4 months, the total US debt has increased by about 7% from $31,400 billion to $33,442 billion. Also notable is that the debt recently rose by as much as $275 billion in one day due to a widening budget deficit.

High inflation in combination with extremely high interest rates and low economic growth mean that the financial system will face the greatest challenge since the financial crisis in the coming period. Confidence in central banks and governments will be tested. The enormous US debt is supported by the largest economy in the world. In the past, the economy was able to absorb such debts and budget deficits could be easily financed. As a result of increasing expenditure on healthcare, defense and immigration, the annual budget deficit is expected to increase further in the coming years. This in turn causes a further increase in debt.

There were few new interesting developments in the field of cryptocurrencies in the past month. The industry continues to wait for the formal approval of the Bitcoin ETF. It is expected that this could take another 3 to 6 months maximum. After the American regulator SEC lost a lawsuit from Grayscale, the arguments for a Bitcoin ETF (particularly market abuse) have run out. In addition, the Bitcoin ETF is of great importance for the crypto industry, but for the SEC it is no more than part of current affairs.

Bitcoin and cryptocurrencies will be interesting in the coming period for investors who believe that capital will flow into Bitcoin and cryptocurrencies as a result of recent and expected developments. The current total market capitalization of bitcoin and cryptocurrencies of $1,100 billion is still dwarfed by the market capitalization of, for example, an Apple ($2,700 billion), which still shows how small the crypto market is. The built-in scarcity of Bitcoin in combination with the increasing number of (long-term) investors has in the past provided extreme positive returns under the right circumstances. This scenario is and will remain realistic in the coming period, especially with the upcoming approval of the Bitcoin ETF, which in the most likely scenario will result in billions in new capital inflows.