Bitcoin’s (BTC), and Ether (ETH) painful drops in price of 60% and 66% respectively are drawing a lot attention from crypto critics. Perhaps this is deserved. However, there are plenty of stocks that have similar, if any, performance.
Partially, the volatility seen in crypto prices can be attributed to major centralized yield- and lending platforms going under. Three Arrows Capital’s bankruptcy is also a factor. There are also a few exchanges and mining pool facing liquidity problems.
The year 2022 was not a good one for cryptocurrencies. Tesla lost 75% of its Bitcoin holdings during Q2 and that’s despite having a profit of $218 million. Although the company is still holding a position of $218 million, investors were not helped by the news about Bitcoin’s corporate adoption.
Central banks aren’t the only ones to be affected by the withdrawal of stimulus measures and rising interest rates. Cryptocurrencies also have a negative impact. A few multi-billion-dollar companies all over the world have also been affected by central banks withdrawing stimulus measures and increasing interest rates. In 2022 alone, losses will exceed 85%.
Stock prices of cash-starved companies fell sharply
Companies, particularly those listed on stock exchanges, depend on financing, regardless of whether it is used to fund mergers and acquisitions, or for day-to-day operations. Interest rates set by central bank have a dramatic impact on debt-intensive industries like energy, technology, and auto sales.
Saipem (SPM.MI), an Italy based oil and gas engineering service provider for onshore and offshore projects, saw its shares drop by 99.4% in 2022. The company suffered severe losses of more than one-third its equity in 2021. It desperately needed cash to keep its feet on the ground as capital costs rose and interest rates increased.
Uniper (UN01.DE), a German-based energy company employing over 10,000 people, was hit hard by severe impairments following the suspension of Nord Stream 2’s gas pipeline project. This led to a rescue package of 15 billion euros in July 2022. Uniper was unable to meet its contracts due to rising energy prices and was nationalized in September 2022 by the German government. This resulted in a 91.7% decline in stock year-to date, compared to a $14.5 billion valuation.
Cazoo Group Ltd (CZOO), which currently has a market capitalization of $466 million, was worth $4.55 billion at the end 2021. This is a 90% decrease. The restrictions during lockdowns meant that the UK-based company was unable to rent or trade automobiles online. However, it thrived. The share price of U.S. auto retailer Carvana, (CVNA), also fell 87%.
In 2022, biotech companies I-Mab and Kodiak Sciences (KOD), lost 90% of their value. China-based I-Mab saw its stock rise sharply after AbbVie stopped its cancer treatment drug trials. The biotech company could previously receive success-based payments up to $1.74 million. North American Kodiak Sciences was also affected by the failure of its lead drug in Phase 3 clinical trials.
Tech sector growth is essential.
The lower growth rate and higher hiring costs also affected software services. China-based Kingsoft Cloud Holdings, (KC) a cloud service provider, reported a net loss in Q1 2022 of $533 million, and a larger deficit of $803 million over the three months that followed. Its shares fell 87.6% from the beginning of 2018 to Sept. 22.
Tuya Inc., an artificial intelligence provider and Internet of Things servicer, is another example of a tech company. Despite a raise of $915million in March, the company’s shares fell by 83.7% by 2022. The Q2 revenue decreased by 27% compared to the previous year. Over the past twelve months, Tuya also suffered losses of $187.5 millions.
A few other tech companies experienced 80% or greater corrections in 2022. These included Cardlytics (CDLX), Bandwidth, BAND, Matterport (MTTR), Zhihu and Zhihu. Each of these companies had a market capitalization of $1.5 billion or more by 2021. These losses should not be overlooked.
It is difficult to overstate the poor performance of Bitcoin, especially since many believed its digital scarcity would be sufficient to withstand a turbulent 2018. However, it is difficult to say that the stock market has performed better when adjusted for historical volatility and gains in 2021.
Therefore, volatility and sharp corrections do not only affect the sector. Investors cannot dismiss digital assets simply because there is a drop of 60% or 70% in 2022.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.