Finance

A smartphone with Facebook’s logo is seen in front of displayed Facebook’s new rebrand logo Meta in this illustration taken October 28, 2021.
Dado Ruvic | Reuters

Check out the companies making headlines after the bell Wednesday:
Meta Platforms — Shares of the Facebook parent plunged more than 22% on the back of disappointing quarterly earnings. Meta reported earnings per share of $3.67, while analysts polled by Refinitiv expected a profit of 3.84 per share. The company’s current-quarter revenue guidance was also below expectations.

Qualcomm — Qualcomm shares whipsawed after the semiconductor maker posted better-than-expected results for the previous quarter. The company posted earnings of $3.23 per share on revenue of $10.7 billion. Analysts expected earnings of $3.01 per share on revenue of $10.42 billion, according to Refinitiv.
Align Technology — Align Technology reported a fourth-quarter profit that was above expectations. The company earned an adjusted $2.83 per share, topping a StreetAccount estimate of $2.74 per share. Still, shares fell about 5% after hours.
Spotify Technology — Shares of the audio streaming company dropped more than 11%, after the company’s quarterly numbers showed a slowdown in subscriber growth. Spotify said premium subscribers grew by 16% year over year in the fourth quarter. That growth rate is down from 19% in the third quarter.
Qorvo — Qorvo shares dropped about 4% on the back of mixed quarterly results. The chipmaker earned $2.98 per share in the previous quarter, topping a Refinitiv estimate of $2.76 per share. However, the company’s revenue of $1.11 billion was in line with expectations.

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The Google logo seen at the entrance to Google Cloud campus in Seattle.
Toby Scott | SOPA Images | LightRocket | Getty Images

Check out the companies making headlines in midday trading Wednesday.
Alphabet – Shares of Alphabet popped 7.5% after the Google parent posted blowout quarterly results and announced a 20-for-1 stock split. Alphabet beat analyst estimates for every major metric, except for YouTube advertising revenue; the company reported a profit of $30.69 per share in the fourth quarter, compared with the Refinitiv consensus estimate of $27.34.

PayPal – PayPal plunged 24.6% after issuing disappointing guidance for the current quarter — which it blamed on inflation — and missing bottom-line forecasts by a penny per share. The payments giant also pointed to challenges with the transition of former owner eBay to its own payments platform.
General Motors – GM shares fell 1.1% after a mixed quarterly report. The automaker posted adjusted quarterly earnings of $1.35 per share, 16 cents higher than the Refinitiv consensus estimate. However, GM’s revenue fell short of Wall Street expectations.
Advanced Micro Devices – AMD shares added 5.1% after the chipmaker beat earnings expectations. The company posted an adjusted quarterly profit of 92 cents per share, topping the Refinitiv consensus estimate by 16 cents. AMD also forecast better-than-expected full-year revenue, as demand remains strong for its data center chips.
Capri Holdings – Shares of the company behind Michael Kors and other luxury brands jumped 7.8% after a stronger-than-expected earnings report. Capri reported adjusted earnings of $2.22 per share for the last quarter, beating the Refinitiv consensus estimate of $1.69 per share. The company also hiked its profit forecast as demand for handbags and apparel remains strong.
Boston Scientific – Shares of the medical device manufacturer ticked 4.7% lower after reporting a disappointing outlook. Boston Scientific did, however, report quarterly earnings of 45 cents per share, 1 cent over expectations. The company’s revenue also beat a Refinitiv estimate.

Match Group – Match Group shares rose 5.3% even after the Tinder-parent company issued a weaker-than-expected full-year revenue forecast, as it projects pandemic will continue to hinder dating activity.
Under Armour – Shares of the apparel company rose 2.7% after Morgan Stanley upgraded the stock to overweight. The investment firm said that Under Armour looked like a buying opportunity after a weak January and that the company should be able to better manage supply chain issues than some of its peers.
— CNBC’s Yun Li, Maggie Fitzgerald, Jesse Pound and Tanaya Macheel contributed reporting.

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Identity theft linked to unemployment benefits surged during the Covid-19 pandemic.
Unsuspecting victims may get a 1099-G tax form detailing benefits they didn’t receive.
The good news: They don’t owe tax on those fraudulent benefits. But there are steps they need to take to protect against financial harm.

Photo by Rafa Elias | Moment | Getty Images

Many victims of identity theft linked to unemployment fraud will learn of the crime this tax season.
Such fraud — whereby organized crime rings and other thieves use stolen personal data to claim unemployment benefits in others’ names — has surged during the Covid-19 pandemic.

Victims unaware of an identity breach may get an unwelcome surprise: a 1099-G tax form.
The form, issued by a state unemployment agency, lists the total unemployment compensation collected over the year. The IRS treats benefits as taxable income; recipients generally report the 1099-G data on their federal income tax return.

Fraud victims will get a 1099-G form for benefits they didn’t receive, or for a larger sum than they collected. Identity thieves got those funds instead, leaving victims to deal with the fallout.
(Some victims may be notified of the fraud by their employer. A state unemployment agency may contact the employer to verify a layoff before issuing benefits.)

Here’s the good news: Victims won’t owe tax on those funds. But there are steps victims should take quickly to protect their identity; not doing so could have severe financial repercussions like damaged credit or having bank accounts opened in their name.

“By the time the fraudster has applied for unemployment insurance, who knows what else they used your identity for,” according to Michele Evermore, a senior policy advisor for unemployment insurance at the U.S. Department of Labor.

Scope of theft

Identity theft was especially acute in 2020, when millions of people were likely victims, Evermore said.
Criminals were lured by new federal programs that offered larger-than-usual sums of weekly aid and had relatively lax claiming requirements, which helped expedite funds to the jobless at a time of ballooning unemployment.
In most cases, thieves didn’t hack the unemployment system for personal data, Evermore said — they got it from past data breaches, like the one that impacted the crediting reporting company Equifax in 2017.

Federal officials and state agencies have clamped down since early 2020, instituting identity verification and other fraud-prevention measures, Evermore said.
However, criminals are still successful in some cases. About $1 billion of benefits issued between July 2020 and June 2021 was due to confirmed fraud, much of it likely due to identity theft, Evermore said.
“We haven’t completely shut down the fraud,” she said. “[But] it’s been such a huge priority for states. If there’s not a significant reduction in 2021 I’d be shocked.”

What to do

Further, check your credit report for suspicious activity or unauthorized lines of credit. You can request a free credit report every week through AnnualCreditReport.com or call 1- 877-322-8228, according to the Labor Department.
Also, consider freezing your credit to protect against new accounts being opened in your name.
The Labor Department also recommends reporting the incident to the U.S. Department of Justice’s National Center for Disaster Fraud, to help law enforcement stop future theft.  
Victims can consult dol.gov/fraud or the IRS website for more information.

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A trader is comforted by a coworker as they work on the floor of the New York Stock Exchange (NYSE) on March 1, 2018 in New York City.
Eduardo Munoz Alvarez / Getty Images

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The oversaturated SPAC market is continuing to get crushed in the new year as speculative stocks with little earnings fall further out of favor in the face of rising rates, while a growing number of deals were abandoned in the tough environment.

Companies that went public via blank-check deals have been among those worst affected by January’s tech-driven sell-off. Meanwhile, faced with unfavorable market conditions, many sponsors have been forced to scrap their proposed deals, sometimes even before the SPACs got listed.
“The SPAC bubble is bursting,” said Chris Senyek, senior equity research analyst at Wolfe Research. “SPAC shares are extremely volatile due to their speculative nature.”
The proprietary CNBC SPAC Post Deal Index, which is comprised of SPACs that have completed their mergers and taken their target companies public, tumbled 23% in January, even more abysmal than the tech-heavy Nasdaq Composite’s 9% loss when it suffered the worst month since March 2020.

Arrows pointing outwards

Some of the biggest losers last month included clean energy player Heliogen, self-driving related companies Aurora Innovation and Embark and 3D technology company Matterport, which all tumbled more than 50% in a single month.
SPACs stand for special purpose acquisition companies, which raise capital in an initial public offering and use the cash to merge with a private company and take it public, usually within two years.

The market enjoyed a record year with more than $160 billion raised on U.S. exchanges in 2021, nearly double the prior year’s level, according to data from SPAC Research. Investors once piled into shares of these empty corporate shells hoping they would hit a home run.
After a year of issuance explosion, there are now almost 600 SPACs searching for an acquisition target, according to SPAC Research. As the market gets increasingly competitive, some announced deals failed to make it to fruition.
The planned merger of Fertitta Entertainment and the blank-check firm Fast Acquisition Corp was called off at the end of last year. Recent deals that have been abandoned also included online grill retailer BBQGuys, fintech firm Acorns and cloud software platform ServiceMax. 
Meanwhile, there has been a growing number of SPAC listing withdrawals, meaning the sponsors decided to pull the plug on their listing after filing the initial S-1. There were nearly 20 such cases in the month of January, a jump from only single digits in the prior two quarters, according to SPAC Research.
— CNBC’s Gina Francolla contributed reporting.Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns, and CNBC has a content partnership with it. More

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Lux Capital invests in emerging science and technology companies, making long-term bets on contrarians in the space. Over two decades, the firm has grown to manage $4 billion in assets. 

Josh Wolfe is the futurist fund manager leading the charge at Lux Capital. He has an acute read on scientific innovation and technological breakthroughs to which investors should be paying close attention. Wolfe sat down with CNBC’s Delivering Alpha newsletter to discuss his investing outlook, along with where he sees the most promising opportunities right now.
(The below has been edited for length and clarity. See above for full video.)
Leslie Picker: I just wanted to start first with your broader read on the markets right now. Do you think that especially in some of the key pockets of tech, and growth, is this just some air coming out of the tires a bit or a full revaluation of the sector?
Josh Wolfe: I think in some sectors, it’s a mix. I think you’ve got a flat tire in some sectors. We’re looking at probably, in my estimation, a greater than 60% chance that we are in March of 2000 for a broad segment of the market that has been very overvalued. And that means that we’re probably going to, for an 18 month period till, say October 2001, where you saw about an 80% decline in some of the most popular names. And that 80% decline happened by 50 basis points, 1% drops over a long period of time, which was a measure of people’s belief, clinging, that this was going to continue. You’ve had five, six years where buy the dip has been the mantra and it has worked. And I think it’s no longer going to work and you’re going to see revaluation across specifically some segments of the market, but largely across high-growth tech and speculation and the stuff that we specialize in.
Picker: What are you telling your portfolio companies to do in light of this?

Wolfe: Three words: husband your cash. Hold on to the cash that you’ve raised. We’ve had companies that have gone public through SPACs, we’ve had companies that have done direct listings, companies that have gone public through traditional IPOs – the amount of cash that was delivered to balance sheets of Lux portfolio companies, and many companies around the world, is unprecedented. You’ve got hundreds of millions of dollars for companies that are burning, maybe $10 million a quarter, something like that. So you’ve got maybe a decade of cash. What you do with that cash now is the most important capital allocation decision that a management team and a board can make. And in our judgment, the most important thing you can do is husband that cash. Investing now, if we’re going into any kind of recessionary times, is going to be like spitting against the wind, where that cash is going to be ill served going after growth. Instead, make sure you have a fortress balance sheet, look at your weaker competitors, consolidate customers, technologies, positions, I think you’re going to see a huge M&A boom over the next year.
Picker: One of the big aspects of valuation growth in Silicon Valley has just been the amount of capital that’s been circulating over the last, five, six, seven years. Do you see that slowing down anytime soon, given what we’re seeing in the public markets? And will that impact the valuations that companies are able to get as well as the capital that they’re able to get moving forward?
Wolfe: And emphatic yes, yes and yes. Now the way that I think about this, there’s going to be some segments of the market, again, that are flush with cash. A lot of funds have been raised. We closed a billion and a half just six months ago, with a lot of dry powder to deploy. Now the speed with which we’re doing that is going to be much slower than it was say, a year ago or two years ago…So I think that the next year you’re going to see LP indigestion, GPs slowing their pace, companies in the private markets seeing valuations come down, akin to what you are seeing predictably in the public markets.
Picker: Because typically, there is a lag. Only recently have we started seeing reports come out that companies are willing to take lower valuations as a result of what’s going on right now. But at least over the last few years, and especially during – surprisingly – during COVID, many private companies still were able to maintain pretty decent valuations and a lot of them were able to double or triple their valuation. So you think this time is actually different and we will see sort of that 2002 period where startups really have to kind of bootstrap it for a while.
Wolfe: In the private markets, the latest valuation is set by the marginal price setter. And in many cases, historically, that might have been SoftBank. That might be some of the large crossover hedge funds that are doing private deals. And they were basically saying relatively indiscriminately, “We’re gonna’ buy the winner in the company. Does it really matter what price we pay? No, particularly if we have great terms.” … If you’re senior preferred in the capital structure of these companies, you’re in a great position. So I do think that you’re going to see a situation where private companies are going to go through a discriminating narrowing, meaning the crossover hedge funds, the late-stage growth investors and even the early stage investors are going to be way more discriminating. And [it’s] going to be dominated by, I’ll give you an acronym, instead of FOMO, Fear Of Missing Out, It’s what I call SOBS, the shame of being suckered. People do not want to be suckered in this current moment.
Picker: I do like that acronym. I wonder if it will ultimately take hold, because I think a lot of investors have been waiting, especially those that have been in Silicon Valley for a while, I’ve heard the term tourist investors for some of the public-private investors that do both sides, crossover investors, that they don’t expect them to be around for a while. Do you agree with that? Do you think that ultimately we do see people kind of just exit this part of the market entirely?
Wolfe: I think it’s true of every industry through time, right? You see a huge number of entrants then a precipitous pruning as the numbers decline over time. What the wise person does in the beginning, the fool does in the end. This happens within sectors, it happens within investment sub sectors. So you saw this, you know, 2002 to 2007, with the rise of activist hedge funds or active long short hedge funds, then there was a pruning post-crisis…There will be survivors. There will be great investors that come out of this market, there will be great new firms that form, and there will be a significant culling of the herd. I would predict that between 50% and 75% of the active investors in private markets today will disappear within the next few years.
Picker: Are you putting capital to work right now? Are you kind of hunkered down to see how this all shakes out? Or are you really just looking to sit this out for the long term?
Wolfe: Well, for our existing companies, we’ve got fortress balance sheets and we’re telling them, “Consolidate your position, do it as quietly as you can, do it as loudly as you can, but just do it.” For new investments, we’re becoming more discriminating on price. We’re not participating in any auctions. We’re not doing deals that are closing because of this FOMO in a day or two, because you got 40 competing term sheets. We’re playing the long game. Now the beautiful thing about the long game is you can invest in deep science and deep technology in these cutting edge areas where there are few investors and few companies. We’re not investing in areas where there’s 500 or even 50 competitors. In many cases, we’re investing in a sector where there might be only one, two, or three companies. You capitalize that company, you bet on the right management team and you can withstand whatever’s happening in the macro for five, six, seven years and make sure these companies are well capitalized. At the end of the day, we’re not buying indexes. We’re not passive investors, we’re active investors, we’re sitting on boards. We’re helping grow these companies from inception, providing them talent and competitive intelligence and future financing, risk reduction.
I always say that it’s sort of like in our business, trying to pick the best meal on a menu after you’ve selected the best menu in the best restaurant in the best city in the best state in the best country and you’re about to eat a morsel of that delicious bite that you’ve selected, and all of a sudden Godzilla comes and steps on the on the restaurant. Ignorance of the macro is no virtue. You have to pay attention to what is going on in the context of capital markets, inflows, price setting where money is flowing, what the Fed is doing. A lot of people are not focused on that kind of stuff. We historically always pair a little bit of macro understanding and the global situation into our micro investments and security selection on the entrepreneurs we’re betting and the companies that we’re building.
Picker: Do you see any specific opportunities right now that you’re excited about?
Wolfe: You know, there are two big themes that we’re really capitalizing on. And we broadly say we’re prepared to pounce. So one of them is in hard power and one of them is in soft power. Both of these relate to geopolitical instability. In the geopolitical stage, you’ve got a revanchist Russia, you’ve got a rising China, you have a cold war really between these two powers, a bifurcation of financial systems, surveillance systems, internet technology. And so on the hard power side, every facet of aerospace and defense is something that we think the U.S. and its allies needs cutting edge technology. You’ve had 20 years of Zeitgeist where people have really been loath in this military industrial complex to want to provide cutting edge technology to the women and men that are on the frontlines of war, whether that’s Special Operations, Air Force, Space, Force, Army, etc. And so we are very focused on providing technology through many of our investments, to the defense industry. 
And I think you’re going to see a resurgence and reemergence of some of the next gen primes and people that are going to compete with Lockheed and Raytheon and General Atomics, et al. in air, space, land and sea – autonomous systems, artificial intelligence, machine learning, cutting edge tools and technologies that are very expensive, very risky and in many cases, people have been loath to only focus on a government customer like the Department of Defense or the Pentagon, or allies. We’re entirely comfortable doing it and we think it’s geopolitically important…You’ve got north of 14 sovereigns that are now racing to get to space…and so there’s a lot of competition to launch things into space, have satellites, antennas, communication, lots of technologies that were invested in across [those] platforms from literally launch all the way up through space. 
On the soft power piece….we’re convinced, and people have not really picked up on the steam yet, but what we call the tech of science, there’s going to be a huge boom and demand globally, but particularly for the U.S. pharma companies, biotech companies, academics, U.S. government labs, for the technologies that improve science and give us a competitive advantage to win on the global stage, what is really prestige, globally. More

Check out the companies making headlines before the bell:
Capri Holdings (CPRI) – The company behind Michael Kors and other luxury brands reported better-than-expected earnings for its latest quarter and raised its profit forecast as demand for handbags and apparel remained strong. Capri earned an adjusted $2.22 per share for the quarter, beating the $1.69 consensus estimate, and the stock leaped 10.8% in the premarket.

Boston Scientific (BSX) – The medical device maker’s stock slumped 4.4% in premarket trading after the company reported a weaker-than-expected outlook. Boston Scientific did beat top and bottom-line estimates for its latest quarter, earning an adjusted 45 cents per share compared with a 44-cent consensus estimate.
Waste Management (WM) – Waste Management shares added 2.4% in the premarket, after announcing a planned dividend increase and projecting full-year revenue above current Wall Street forecasts. For its most recent quarter, Waste Management reported adjusted earnings of $1.26 per share, matching estimates.
Brinker International (EAT) – The parent of Chili’s and other restaurant chains saw its shares surge 8% in the premarket after reporting a bottom-line beat for its latest quarter. Brinker earned an adjusted 71 cents per share, 20 cents above estimates, although revenue was slightly below forecasts.
D.R. Horton (DHI) – The home builder’s stock rallied 4% in premarket trading after a top and bottom-line beat amid robust housing market conditions. D.R. Horton earned $3.17 per share for its latest quarter, compared to a consensus estimate of $2.79.
Alphabet (GOOGL) – Alphabet surged 10.6% in the premarket following a blowout earnings report as well as the announcement of a 20-for-1 stock split. Alphabet earned $30.69 per share for the fourth quarter, compared with a consensus estimate of $27.34, while revenue also topped forecasts as digital ad sales surged.

General Motors (GM) – GM came in 16 cents above estimates with adjusted quarterly earnings of $1.35 per share, although the automaker’s revenue came in short of Wall Street projections. GM issued an upbeat 2022 forecast and said it would move to accelerate its efforts to produce and market electric vehicles. GM rose 3.3% in premarket action.
Starbucks (SBUX) – Starbucks fell 8 cents short of estimates, reporting an adjusted quarterly profit of 72 cents per share, though revenue came in above estimates. The coffee chain said its bottom line was impacted by higher costs for commodities and labor, a situation it said will persist in the coming months. Starbucks slid 2.8% in the premarket.
PayPal (PYPL) – PayPal plunged 16.8% in the premarket after it missed bottom-line forecasts and issued a weaker-than-expected current-quarter outlook. PayPal missed consensus forecasts by a penny with adjusted quarterly earnings of $1.11 per share, though the payment service’s revenue beat estimates. PayPal results are taking a hit from former parent eBay’s ongoing transition to other methods of payment. Rival Block (SQ), the company formerly known as Square, tumbled 6.9% in the wake of PayPal’s report.
Advanced Micro Devices (AMD) – AMD beat estimates by 16 cents with an adjusted quarterly profit of 92 cents per share, while the chip maker’s revenue also topped forecasts. AMD also forecast better-than-expected full-year revenue on continued strong demand for its data center chips. AMD shares surged 12.4% in premarket trading.
Match Group (MTCH) – Match Group is under pressure after the operator of Tinder and other dating services issued a softer-than-expected full-year revenue forecast on the expectation that Covid-19 will continue to hinder dating activity. Match Group beat estimates by 10 cents for its latest quarter, reporting adjusted quarterly earnings of 63 cents per share. Match Group fell 3.7% in premarket action.
Gilead Sciences (GILD) – The drug maker’s shares fell 3% in the premarket after it reported a lower-than-expected quarterly profit amid declining sales of its Covid-19 treatment remdesivir. Separately, Gilead agreed to pay $1.25 billion to GlaxoSmithKline (GSK) to settle a patent dispute involving HIV treatments.

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Many Black Americans missed out on the hefty gains from the stock market due to historically low equity ownership.
Only 34% of Black American households owned equity investments, compared to 61% of white families, according to Federal Reserve Board’s most recent survey in 2019.
The primary way that Americans build wealth and invest is through retirement plans, and there have been enormous racial disparities in that area.

Commuters arrive at Grand Central Station with Metro-North during morning rush hour in New York City.
Angela Weiss | AFP | Getty Images

Thanks to the historic stock market rebound from pandemic lows, affluent 401(k)-holders and savvy investors in the U.S. enjoyed double-digit returns from stocks over the past two years. But not for the majority of Black Americans.
Only 34% of Black American households owned equity investments, compared to 61% of white families, according to Federal Reserve Board’s most recent survey in 2019. The average value of stocks Black Americans owned only amounted to $14,400, nearly a quarter of what their white peers held, the data said.

“Because Black households are less likely to be invested in the stock market and on every level less likely to be engaged in the financial system, they not only entered the pandemic with large gaps, the likelihood is that we are going to see some of these gaps widen coming out of the pandemic,” said John Lettieri, the Economic Innovation Group’s president and CEO.
The primary way that Americans build wealth and invest is through retirement plans, and there have been enormous disparities between Black and white Americans on that front. Many Black Americans missed out on the hefty gains from the stock market because they often hold occupations where employers are unlikely to offer an employer-sponsored retirement plan.
Only 44% of Black Americans have retirement savings accounts, with a typical balance of around $20,000, compared to 65% of white Americans, who have an average balance of $50,000, according to the Federal Reserve. 
“If you have access to a wealth management plan, what’s happened in the last two years has been a boom to your bottom-line wealth,” Lettieri said.
The stock market pulled off a stunning recovery rally from the pandemic lows in March 2020, with the S&P 500 enjoying the fastest bull market since World War II, doubling off the bottom. Many credited unprecedented monetary and fiscal stimulus for the market’s leap out of its massive pandemic slump.

Arrows pointing outwards

The Federal Reserve slashed interest rates to near zero, while bolstering financial markets with $120 billion in emergency monthly bond purchases. The rescue action came as the S&P 500 suffered its fastest 30% drop in history. Meanwhile, the government injected trillions of dollars into the economy in Covid relief spending, sending direct payments and unemployment insurance to many struggling Americans.
While these federal programs provided much-needed short-term relief, they never directly addressed the racial disparities in the jobs market. Black Americans bore the blunt of the initial job hit from the pandemic, and the labor-force recovery has been particularly uneven.
“The kind of jobs that went away immediately when the pandemic hit impacted communities of color to a much greater extent than white communities,” said Tatjana Meschede, associate director at Brandeis University’s Institute on Assets and Social Policy.
The latest jobs report showed that for all Black workers, the unemployment rate in December stood at 7.1% — more than twice that of white workers at 3.2%. The roughly two-to-one ratio for Black versus white unemployment has been consistent throughout history.
Black Americans have also held less risky assets such as bonds but those have much lower returns, especially in the past two years. A Credit Suisse study found that even among the top 5% Black wealth holders, they are more likely to own conservative investments like real estate, bonds and life insurance than their white counterparts.
— CNBC’s Nate Rattner contributed to this story. More

Crypto exchange FTX and its U.S. affiliate raised a combined $800 million in January, while digital asset infrastructure firms Fireblocks and Blockdaemon bagged $550 million and $155 million, respectively.
It follows a blockbuster year for crypto start-ups, which raised a record $25 billion in 2021, according to CB Insights data.
Still, a pullback in crypto prices has got some investors worried about a more severe downturn known as “crypto winter.”

A bitcoin sculpture made from scrap metal is installed outside the BitCluster cryptocurrency mining farm in Norilsk, Russia, on Sunday, Dec. 20, 2020.
Andrey Rudakov | Bloomberg | Getty Images

Cryptocurrency start-ups are having a solid start to the year, bagging hundreds of millions of dollars in fresh cash even as investors grow wary about a steep drop in digital asset prices.
Several privately-held firms announced bumper cash injections in January. Crypto exchange FTX and its U.S. affiliate raised a combined $800 million, valuing the companies at $32 billion and $8 billion respectively.

Fireblocks, a crypto infrastructure start-up, was valued at $8 billion in a $550 million round, while rival Blockdaemon scored $155 million on a $1.3 billion valuation. It’s worth noting some negotiations for these deals likely began late last year.
It follows a blockbuster year for both cryptocurrencies and the ventures being developed to support the growth of the industry. Crypto and blockchain start-ups raised a record $25 billion in 2021, marking an eightfold increase year-on-year, according to CB Insights data, as venture capitalists sought to ride a rally in bitcoin and other tokens.

Still, the future direction of the market has become more uncertain after a sharp sell-off. Bitcoin fell as low as $33,000 in January, down from an all-time peak of nearly $69,000 in November. The world’s largest cryptocurrency ended the month down over 18%, marking its worst start to a year since the beginning of a bear market in 2018.

Crypto winter?

The pullback in crypto prices has got some investors worried about a more severe downturn known as “crypto winter.” The last such event happened in late 2017 and early 2018, when bitcoin lost as much as 80% since its then-record high.
“If we are entering ‘crypto winter,’ it’s unlike the bear markets we’ve seen before,” said Konstantin Richter, CEO and founder of Blockdaemon. “The crypto market today has institutional adoption. They see the promise crypto holds. Many institutions are long-term bullish on the tech.”

Digital assets have slumped lately due to expectations of higher interest rates from the Federal Reserve and other major central banks. A common investment case for bitcoin is that it can act as a store of value that’s uncorrelated with other financial assets — it’s sometimes referred to as “digital gold.”
But there are concerns this thesis is unravelling, as central banks look to tighten policy in an effort to tame rising inflation. Along with cryptocurrencies, global stock markets have also taken a tumble, with high-growth tech stocks in particular taking a battering as traders reassess their positioning.
The crypto market “has been volatile from the very beginning,” said Michael Shaulov, CEO and co-founder of Fireblocks. “What is very clear to us is that the investment in the infrastructure is not going to stop.”
Shaulov says that, whether or not the market is teetering on the edge of another crypto winter, capital will continue flowing into the sector as focus moves beyond “speculative” trading to more sophisticated use cases. These include rapid settlement of payments via stablecoins and putting financial securities on the blockchain.

Web3

John Linden, CEO and co-founder of crypto gaming start-up Mythical Games, says a crypto bear market might not be the worst thing to happen right now.
“We could head towards a crypto winter — and I think, honestly with any market, that’s not a terrible thing,” he said.

Mythical Games, which wants to incorporate crypto collectibles known as non-fungible tokens or NFTs in video games, raised $125 million at a $1.3 billion valuation in November.
Back in the bitcoin bubble of 2017, “you could literally not go wrong,” Linden said. “You could buy anything out there and you were making money on it.”
“What we saw was the projects fell apart. They started going away. And the ones that were truly creating value came back 100x within a couple years. I think we’re going to see the same thing.”
Linden says another downturn in crypto markets could lead to innovation around “Web3,” the idea of a decentralized internet based on blockchain technology.
“The NFT boom is just getting started as consumer demand, celebrity influence, and media hype compound,” said Chris Bendtsen, a senior analyst at CB Insights.

Pricing mismatch

Several crypto start-ups have seen their valuations climb in recent months, even as public tech stocks saw a pullback. The Nasdaq Composite is down roughly 12% since hitting all-time highs in November.
The trend of rising crypto start-up valuations has led some founders and investors to question whether there’s a mismatch in the public and private markets.
“I think that there’s been a pretty big dislocation between public and private markets,” said Sam Bankman-Fried, CEO and co-founder of FTX.
So far, none of the major privately-held crypto companies seem to be talking about going public, which may reflect the negative mood generally in public markets. Coinbase, one of the few publicly-listed firms, has fallen more than 40% since its Nasdaq debut.
“On the long horizon, probably this is the path for us,” Shaulov said when asked about a possible Fireblocks IPO. “In the short term, we don’t have any concrete plans.”
Bankman-Fried said FTX aims to make preparations for a stock market debut but added that, for the moment, “we don’t feel like we have any particular need to do it.”

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