Big Tech Feels the Bite of the Crypto Winter

The US Federal Reserve cut interest rates to zero during the pandemic, which is where they remained for two years. The Fed then commenced their most intense series of rate hikes in 40 years, so liquidity in the market suddenly became scarce, directly impacting risk assets like crypto and tech stocks. Therefore, the November obliteration of crypto giant FTX didn’t seem surprising to some analysts, especially “…when considered next to 11 months of wreckage in technology stocks and centuries of asset-bubble history”, explained Bloomberg’s Emily Nicolle and Katherine Greifeld.

Pandemic economy excesses were painfully being ironed out, which was evident in the November descent of Cathie Wood’s Ark Innovation ETF fund – a big climber back in 2020. FTX seemed to have been precariously balanced on the success of a crypto token that itself reflected the company’s health. This “complacency and belief in its own genius… [show] hallmarks of the crises afflicting Meta Inc. and Twitter Inc. at present”, suggest Nicolle and Greifeld.

Let’s take a closer look at the interconnections between the tech giants and the crypto economy—a must read for anyone involved in online trading of crypto and tech share prices.

Alphabet

Alphabet reported that growth was slowing in its Q3 update, after which its shares were duly punished, leaving them down 38% for the year in early November. The company declared the guilty parties were the crypto firms who had abruptly cut ad expenditures. Looking back to Q2, ad revenue grew by 11.6%, but in the following quarter its growth was a fraction of that, at only 2.5%. 2022 was a year of economic shakiness, particularly due to the Ukraine conflict, red-hot inflation, and sky-high interest rates. Companies involved in financial services saw their earnings suffer, and their response was to trim down on advertising.

Alphabet wasn’t alone in feeling bitter towards the crypto online trading sector. Facebook, TikTok, and Twitter were also accustomed to raking in lots of money for their service of running crypto ads. “Crypto winter is a crypto advertising winter”, pronounced Grant Harbin of Headlight at the end of November. Overall, crypto firms spent only $35 million on ads in Q3, which was a massive 80% less than in Q1.

Meta Platforms

When Meta gave their forecast for Q4 revenue back in October, the disappointing figures showed how much they too were struggling against the feeble advertising market. Their shares took a beating on the report, dropping 12% to find themselves 55% down for the year. Most of Meta’s revenue comes in through advertising, and they were also suffering due to Apple’s altered privacy rules that reduced the effectiveness of ads on social media.

The company started laying off employees in November. CEO Mark Zuckerberg insisted that, “While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth”.

Looking Forward

Worries of recession have been undermining risk appetite, which touches both upon tech stocks and crypto prices in the online trading sector. In November, after the death of FTX, JP Morgan said they believed Bitcoin could fall all the way down to $13,000. Referring to the same event, Jay Jog of Sei Labs said, “In the short term, this is going to be really, really bad for the crypto industry”. Limited funds crypto firms will have available for advertising could impact the online trading share prices of companies like Meta, Alphabet, and Twitter going into 2023.

Google is not detaching itself from blockchain technology, made evident in choosing Coinbase to run their web3 project. Perhaps a more formidable obstacle for the company than the drop in advertising budgets will be the unbeatable US dollar. Sales made in foreign currencies shrink when converted back into dollars, hindering international growth. Google CFF Ruth Porat believes Q4 results will continue to reflect this ongoing challenge.

“We’ve had an industry that was really built primarily on FOMO and easy money”, says Hilary Allen of American University, referring to the crypto industry, “and now governments around the world are raising interest rates… you’re just surviving on FOMO. It’s not as appealing”. Indeed, the crypto and tech spaces will need to adapt to the new economic environment in order to flourish.

Still, according to IBM CEO Arvind Krishna, companies are going to keep on spending money on tech, even in the face of tight monetary policy and high inflation. The only conditions, for Krishna, are that a “catastrophic recession” doesn’t set in and that a “major energy crisis” doesn’t hit Europe. IBM, for its part, is planning to put money into other use cases for blockchain, but not cryptocurrency. The bottom line is that those involved in CFD online trading of top tech companies ought to keep an eye on tech headlines going forward in order to make more informed trading decisions.