Crypto and tech stocks are plummeting. What that means for your investments – National

Early in the COVID-19 pandemic, new technology star Shopify became Canada’s most valuable company, beating established Royal Bank of Canada player first.

But in the past six months, the shares of the Ottawa-based e-commerce giant have lost nearly 80 percent of their value on the Toronto Stock Exchange.

So what went wrong?

The company reported last week that revenue is still rising, but that growth has been the slowest of any quarter since it was released in 2015. Its profits have also lost analysts ’expectations. That same day, the company announced the largest acquisition in its history, a $ 2.1 billion purchase from a logistics company, as it plans to expand its compliance network.

“We see that the current market outlook is unwilling to reward high-growth companies like Shopify that seek to sacrifice all profits at the expense of growth,” CFRA analyst Angelo Zino said last week.

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Shopify is not alone.

Technology giants like Netflix and Facebook’s parent company Meta, companies that, like Shopify, saw massive gains during the pandemic, have seen their valuations fall since the beginning of the year.

The 25.7 percent loss of the Nasdaq compound by 2022 so far is much more pronounced than that of other indices.

It’s not just that companies themselves are seeing problems along the way, it’s that the market itself has fundamentally changed, says Derek Dedman, vice president and portfolio manager at WDS Investment Management in Ottawa.

This is what some analysts say is behind the technological downturn.

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Inflation is at its highest level in decades in Canada and most other parts of the world, and central banks are largely moving into an aggressive cycle of rising interest rates.

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Market watchers are worried about the arrival of a recession, says Dedman, who is pushing investors away from so-called “growth stocks,” such as tech companies with higher ratings.

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These actions are the ones that tend to go back “the farthest and fastest when you know what’s coming to the fan,” he tells Global News.

But tech selling isn’t necessarily a reflection of whether a business is good or bad, and Shopify is a “great example” of that, Dedman says.

In November, when the company was trading at record highs of more than $ 2,200 per share on the TSX, the market was “at perfectly priced,” he says.

Today’s decline is not necessarily a reflection that Shopify’s fundamentals have changed, but a recognition that the market will not continue to grow as it did during the pandemic, when interest rates were low and e-commerce was booming.

“Once a stock is priced perfectly like this, any kind of irruption along the road, any kind of drop in profits or any tail wind that turns into a headwind … will revalue the stock,” he explains. .

“So it’s not like these companies are suddenly bad companies. It’s more about expectations. “

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Cryptocurrencies and other digital assets are also rapidly losing value. Bitcoin, for example, has lost more than half its value since its November highs.

Dedman says cryptocurrencies can be similar to technology stocks, as their value is derived more from expectation than from the underlying fundamentals.

“Once something is firing higher, it kind of falls further away when times change,” he says.

Some observers in the cryptocurrency space are not intimidated by the recent fall of Bitcoin and have encouraged others to “buy the dive”: grabbing an asset when it falls in the expectation that it will return to previous highs.

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But others say the crypto market, which experienced much acceptance during the pandemic, has not yet been fully tested by a rising rate environment.

“It’s not the first time we’ve reached this level, and the risk-reward ratio for collecting Bitcoin here has been pretty good over the last year or so, but we’re seeing a different macro context,” Matt said. Dibb, COO of Stack Funds, a Singapore-based cryptographic platform, in an interview with Reuters.

However, Bitcoin and other cryptocurrency assets following the trend of traditional markets may not be the worst for the longevity of the products.

“From my perspective, two-way price action and occasional laundering are healthy for markets, including cryptography,” said Brandon Neal, Euler’s COO, a project that lends and borrows cryptocurrency assets.

“We’ve never seen cryptocurrencies in a recession, and no one guesses what’s going to happen,” he added.

What should I do with my wallet?

The turmoil in the market so far in 2022 could be unpleasant for some investors who launched stocks during the pandemic, when rates were at their lowest level and high valuations were in vogue.

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A Morgan Stanley note to clients this week suggested that retailers – direct investors who buy individual stocks or funds instead of working with portfolio managers – have largely seen their earnings cleared since January 2020, according to a Bloomberg article.

Dedman says it’s entirely possible that many investors who haven’t been trading through a rising rate environment are getting a “wake-up call” that the market has reached the “end of easy money.”

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“I think for a typical retail investor, this is a more challenging time,” he says.

“Sometimes traders are negotiating more with momentum than on the actual fundamentals of the underlying company. And finally, the fundamentals need to be updated.”

Although Dedman says there are some stocks that tend to work best when rates are high (commodities and consumer commodities, for example), it’s rarely a good idea to make big changes to your portfolio during the lowest points of the market.

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Investing remains a long-term game and markets are cyclical. If your losses are too high for your risk tolerance and you need to reassess them, Dedman recommends talking to an advisor after the current lows pass for a combination that works best for your financial situation.

“One of the most dangerous phrases when investing is that ‘this time it’s different.’ … We’ve been here before. We’ve been through this time before,” he says.

“When you’re in the heat it’s the worst time to make changes.”

– with Reuters files, Associated Press

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