The bear market in crypto and high-tech shares means a great ‘sorting’ is occurring

In the question of where is real value and what is just froth, I think it is important to focus on the basics, writes Hamish McRae

The bears are growling, and the crypto-bears growling loudest of all (Getty Images)

The bears are growling, and the crypto-bears are growling loudest of all. They have been rampaging across the financial markets, giving US equities the worst start to the year since 2008. And there are probably more declines to come.

Bloombergreports that strategists including Mike Wilson at Morgan Stanley, and Robert Buckland at Citigroup Inc expect stocks to fall further. We will learn more this week, but there is no doubt about the severity of the falls so far – what is most striking is that the newer and more fashionable the asset, the greater the decline.

Take cryptocurrencies. The headlines last week were dominated by the collapse of terra luna, as we reported here. But even the most established of the cryptocurrencies, bitcoin, was trading over the weekend below $30,000 (£24,500), down 37 per cent on the year so far.

My colleague Sean O’Grady said crypto is one of those financial manias that periodically grip the world, and I agree. It is utterly miserable for people who have been sucked into investing by a charismatic promoter with a cute website, just to find they have lost all their money. But in the great sorting-out that is happening – where is real value and what is just froth? – I think it is important to focus on the basics.

Last week, for example, Apple was toppled as the world’s most valuable enterprise by oil company Saudi Aramco. Apple became the first company to be worth more than $3 trillion in January. It is now worth “only” $2.38 trillion (£1.94 trillion), whereas Aramco is $2.42 trillion (£1.97 trillion).

The brutal message seems to be that oil is a better investment than technology. But that is just a snapshot of the market’s perception right now. I happen to think that in, say, five years, Apple will probably be worth more than Aramco, because its growth prospects are better. That may be wrong, but the point of the comparison is to make us think about the nature of value, and acknowledge that our views change.

Views on the prospects for the high-tech giants of America have shifted radically this year. The Apple share price is down 19 per cent in the year to date, but is almost a modest fall compared with that of Netflix, down nearly 69 per cent, or even Tesla, down nearly 36 per cent.

Yup, Elon Musk is still the wealthiest person in the world but he is a lot less rich than he was in January. Maybe that is why he seems to be getting cold feet about his bid to buy Twitter. Shares in Twitter, by the way, were down nearly 10 per cent on Friday.

This is chaotic. Swings of this size are very unusual, particularly since these have been triggered by shifts in mood, rather than specific new information. But we are not through this yet, for I think this volatile period has some way to run before there is some sort of base.

A couple of things have to happen first. One is that we get some idea of how high inflation and interest rates will go, particularly in America. The other is whether there will be a US recession. Until all this is clearer it is hard to work out a basis for pricing.

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When it is, investors may recognise which of the high-tech giants are really worth a beefy share price, and which are purely based on hope. One of the really interesting shifts in strategy came last week from Uber. The chief executive, Dara Khosrowshahi, said they needed to remember that investors owned the company and that managers had to act in their interests. “We need to show them the money,” he said.

This shift in financial direction runs parallel to another shift, that of environmental responsibility. In London, Uber has made its peace with the authorities, got a licence for the next two and a half years, and is extending charging points for electric cars. None of this is reflected yet in the share price, down 44 per cent this year. But it is a sign that companies are recognising investors want profits and ethical behaviour rather than aggressive growth.

So we are not yet at a turning point in the markets, but we can begin to sense one in the way high-tech companies will behave, or at least try to behave. I have no idea what will happen to the cryptoworld, whether Elon Musk will indeed buy Twitter, or whether he should do so. But I am pretty sure that the leading high-tech enterprises have a solid future – though it may be a while before Apple is worth $3 trillion (£2.45 trillion) again.