Half a Trillion Dollars Wiped From Once High-Flying Fintechs (ft.com) 40
Almost half a trillion dollars has been wiped from the valuation of once high-flying financial technology companies that took advantage of the boom in initial public offerings earlier in the pandemic. Financial Times: More than 30 fintechs have listed in the US since the start of 2020, according to CB Insights data, as investors flocked to companies they believed could benefit from a long-term shift toward digitisation accelerated by the pandemic. However, concerns about rising interest rates, lack of profits and untested business models as the economy heads towards a potential recession have put them at the sharp end of this year's sell-off.
Shares in recently listed fintechs have fallen an average of more than 50 per cent since the start of the year, according to a Financial Times analysis, compared with a 29 per cent drop in the Nasdaq Composite. Their cumulative market capitalisation has fallen $156bn in 2022. If each stock is measured from its all-time high, around $460bn has been lost. A second-quarter update from online lender Upstart last week typified the challenges facing many fintechs. The company, which says it uses artificial intelligence to make consumer loan decisions, blamed the "tumultuous economy" for slowing down revenue growth and driving up losses.
Shares in recently listed fintechs have fallen an average of more than 50 per cent since the start of the year, according to a Financial Times analysis, compared with a 29 per cent drop in the Nasdaq Composite. Their cumulative market capitalisation has fallen $156bn in 2022. If each stock is measured from its all-time high, around $460bn has been lost. A second-quarter update from online lender Upstart last week typified the challenges facing many fintechs. The company, which says it uses artificial intelligence to make consumer loan decisions, blamed the "tumultuous economy" for slowing down revenue growth and driving up losses.
Cure inflation (Score:4, Interesting)
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The money doesn't go into the abyss. It goes to the utility companies that provide the power to run the mining rigs.
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It comes out of my dad's retirement fund because his fund manager picked up some dumb ETF that includes crypto-based investments.
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Maybe a tiny fraction goes into the utilities. The majority of the perceived value is hype. Or hope. Technically with cryptocurrency you do NOT need to mine more, they could be traded with a maximum amount available, which was the original cryptocurrency concept. Even then with a fixed amount the price could still rise and fall drasically, just like like a unicorn startup where the value is not related to the amount of hard work of the employees.
Re: Cure inflation (Score:2)
I sell $100 in Bitcoin to pay for electricity mining. The price is 1% lower than the last sale someone made. I move the $400B market by $4B with my trade. 100% of the dollars I receive are handed to the electric company.
Don't confuse the market price (speculative) with the market inflows (mostly going to pay electricity).
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I'm surprised we don't see endorsements by power companies.
I'm imagining a BitCoin logo with endorsement patches like NASCAR
Funny numbers (Score:4, Informative)
This is about "valuation", which is basically VC wishful"thinking" in its purest form.
IE they're slightly less optimistic about making it big with their portfolios of unicorns. The farted rainbows have faded a bit, sparkle a bit less. It's not about realisable value, for should they try that, their houses of cards will come down.
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Re: Funny numbers (Score:2)
Other than the real currency that went into funding these failing firms
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And even when someone lost actual money (ie cash), there are other people out there who gained the money. The only thing lost forever was the hope that the product could be resold at a good price.
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OK, one more time:
Thus for example this headline should read:
Half a Trillion Dollars in Imaginary Money Wiped From Once High-Flying Fintechs
The money is still there. (Score:4, Insightful)
The money still exists, it is just in the hand of those who sold the shares. Just like in the real estate bust of 2008 people are going where did all the money go? The answer was to the people who sold their property when the price was high.
High reward investments tend to also be high risk. High Risks can mean you could end up with a Dud, and the value of your purchase will be much less then what you purchased it for.
We see this happen over and over again, and we will probably see it happen over and over again into the future. A High growth investment opportunity kicks in. People jump on it, not really understanding the risks, or expecting the future to change, then cry because they held onto it for too long, or bought it at its peak.
Re:The money is still there. (Score:4, Insightful)
That is why the moral hazard of 2k8 should never have been allowed to come to pass. The bailouts should not have happened. The FED should not have bought up the bad debts, the bailouts should have not happened. The defaults should have been allowed to destroy the capital. Savers should have been rewarded in a deflationary environment and borrowers should have been squeezed.
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The bailouts and purchasing of bad dept, still fixed or at least delayed more problems then it caused.
Because 2008 recession was actually really really bad, the stuff that is happening today is still small in comparison. Without the bailouts, a lot of large banks would go out of business, as well other businesses access to money (The discussion of Business allowed to operate for such long period of time with high dept is an other issue), which in general would had killed the worlds economy.
However the real
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The money still exists, it is just in the hand of those who sold the shares.
And what people usually do not realize, is that when you sell very low, when you have lost a lot of money - it's usually to that same person who sold near the top, getting what you had for cheap and letting it grow back in value again.
Or, the Greater Fool is buying what you are selling on the way down, never to recover in value again...
So you need to be careful when you are buying dips, that you are buying something with real fundam
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The money still exists, it is just in the hand of those who sold the shares.
It doesn't work that way.
Let's say you own a million shares, and I agree to buy ONE of those shares for $10. Since the shares are worth $10 each, you have a net worth of $10M.
Then, a year later, I buy another share from you for $1. Now your shares are worth only $1M. You lost $9M. No "seller" got that money.
Same thing with the housing crash. People became poorer as their house values dropped, but that money went into no one's pocket because most people didn't sell their homes. The wealth just disappea
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My son says he has a rare Pokemon card that is worth $100. I tell him it's not worth $100 until somebody gives him $100 for it. If it gets wet or lost in the trash, he did not lose $100. See also the music industry and piracy. I also repeat this mantra when looking at my 401k statements of late: "If I haven't sold anything, I haven't lost anything."
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It's not wealth, and it's certainly not money. It's an expectation of future gain. As a kid I once shoveled a wheelbarrow full of snow and offered to sell it to my father for a dollar. He laughed and said he wasn't going to pay a dollar for a wheelbarrow full of snow. A dollar did not disappear. If he HAD given me a dollar, the hundreds of dollars I imagined making from wheelbarrows full of snow would not have suddenly sprung into existence.
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This is exactly the problem I have with how market capitalisation is calculated.
Now I like Tesla as a company and what they are doing but when you see a share price of $1000 and an EPS of $1, you really have to ask in what fantasy can you really say that the market capitalisation of the company is current share price x number of shares, especially since the majority of those shares were sold to their current holders at a much lower price, and originally by the company at even lower prices.
It just doesn't ma
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The money is destroyed because on a macro level though, because the economy is actually not zero sum. The reason why is that reserve requirements vary based on who owns the asset and what kind of asset it is.
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Well, no, most of these startups are still just VC funded. The VCs buy shares from the company, which uses the money to pay employees and throw lots of parties with hookers and blackjack. If they get as far as an IPO or equivalent, THEN the money is in the hands of the original shareholders, who are mostly the VCs.
It probably doesn't exist (Score:2)
e.g. they used Asset A to borrow money from lenders C
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Not entirely, this is part of the Federal Reserve Banking system. They created (printed) the money, the money is still circulating, but the companies has simply lost its value thus now the dollar they printed is worth less.
The market is simply a valuation, not actual money in the bank (although that is what the fed would like us to believe). Whenever the market goes up, that money gets printed, when the market goes down, that money is supposed to be destroyed/returned (promoted through things like increased
Where did it go? (Score:1)
Re:Where did it go? (Score:5, Interesting)
Who stashed all that cash and where
It's like this: You are walking along and you see something shiny. You pick it up. It is a diamond. At least 5 carets. It is worth $1M.
Then you have it appraised. It is a cubic zirconia, worth about $50.
Where did the other $999,950 go? Who stashed it and where?
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More like the you found what you thought was a diamond sold it to someone else, who sold it to someone else, and eventually after lots of resales someone figures out it's just a rock. You got some money though from the first person you sold it to, and everyone probably got or lost a little bit of money along the way, and at the end someone ends up with a very valuable life lesson.
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> at the end someone ends up with a very valuable life lesson.
Don't ask, sell immediately, before anyone knows what we're actually transacting.
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Didn't exist. Valuations are not cash.
I keep sayin' it (Score:1)
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Yeah. "Wealth" is a nice house on your lot. Money is just a means of exchanging wealth.
That's why the fed can cause hyperinflation by simply creating more money out of thin air. I really wish it would stop doing that.
Yeah, because their value is illusory. (Score:2)
You might as well ask for your casino credit to be paid out in crypto, and then use the crypto to pay someone to pray for you. That's about as much as fintech does.
Not all of them (Score:3)
I've worked for a couple of fintechs and both sold commercial software used by other companies including banks. Financial technology is a very broad canvas , it doesn't just mean a load of bros trying to fleece investors with a flash website.
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Same as fads ever were (Score:2)
Most trends that get a lot of press are often initially overdone as investors, those who fear missing out, and those who want to look in-style quickly hop on board and flood it.
I can think of about 2 dozen technologies and trends that were overhyped and either fell flat, or took awhile to get a real footing. The "hype-sters" often make a mess because they force things that are too immature. Progress generally happens in fits and starts, and the timing of the fits and the (re) starts are hard to predict.
Self
Sounds like we need a government bailout! (Score:2)