Dear friends
Financial markets remained volatile in March as investors assessed the impact of the ongoing war in Ukraine. After weeks of fighting and unexpectedly strong resistance from Ukraine and the international community, Putin’s potential endgame no longer seems so obvious.
Global sanctions caused turmoil, the Russian ruble fell 40% in 10 days, stocks and bonds came under pressure, and oil prices rose to new all-time highs. Gold again proved its reputation as a safe haven during the uncertainties of war.
Then, in mid-March, the Federal Reserve decided on its first 0.25% increase in interest rates since 2018 and announced a timetable for up to six more rate hikes this year. While this means that borrowing costs for businesses will rise, the decision only confirmed what was already priced in.
So despite ongoing influence of geopolitics on the markets, equity indices gained momentum and ended the month in the green.
After another turbulent month, the S&P 500 ended at +3.6%, the MSCI World Index +2.5%, 20-year bonds down -5.4%, gold +1.3%, and Bitcoin +5.4%.
Our strategies also regained some ground: Universal closed +0.5%, Progressive +1.1%, and CryptoMax nicely captured the changing market dynamics and closed +10.6%.
Following the invasion of Ukraine, an estimated $640 billion in foreign exchange reserves of the Russian Central Bank have been frozen indefinitely. Although this may have been the right thing to do, the power of leading politicians to control another country’s reserves at the push of a button made many people pause and reflect. The situation highlighted the main difference between the current centralized financial system and the emerging paradigm of decentralized finance with cryptocurrencies that cannot be controlled by any single group or government.
Of course, depending on who you ask, this is seen in a different light. While Ukraine clearly welcomed cryptocurrency donations flowing into the country, India’s central bank, concerned about its future sovereignty and India’s potential rise as a world power, enacted strict crypto laws with taxes of up to 30% on transactions. The Bank of England also fears a significant loss of control from cryptocurrencies and calls for a “high level” of international cooperation. On the other end of the spectrum, El Salvador’s President Bukele criticized that “the U.S. government does not stand for freedom” after the Senate questioned the country’s decision to use Bitcoin as legal tender.
In any case, the rise in commodity prices and inflation fears dominating the headlines, brought cryptocurrencies back into play for many investors.
The combination of a weak Japanese Yen and the sell-off in U.S. bond markets led to a stream of abnormal outflows from the traditional space, which could benefit allocations to crypto.
But of course, there are still many dynamics that investors have yet to “figure out” as they watch the new phase of this asset class unfold.
On my end I will stay calm and carry on with our well-diversified strategies to be ready for potential headwinds from any direction….
Stay happy, healthy and wealthy!
Omar