Forget Musk and Bezos – falling markets in crypto and tech carry risks for us all

We do need to worry about investors who bought shares or crypto at the wrong time and stand to lose money they cannot afford, writes Hamish McRae

With a mere $201bn, Elon Musk is down 41 per cent from his peak last November, when he was briefly worth $340bn (Reuters)

A lot of wealth has been destroyed in the past few months, and the rich have lost most of all. Elon Musk remains the wealthiest person in the world, but with a mere $201bn, he is down 41 per cent from his peak last November, when he was briefly worth $340bn.

Jeff Bezos, No 2 in the league, is now worth only $131bn, down 39 per cent from his peak. There is a thing called the Bloomberg Billionaires Index, which tracks the top 500 billionaires’ wealth on a daily basis, so they can see how they are doing – though I suspect that if you are that rich, being up or down a few billion is not that much of an issue.

From a British perspective, perhaps the most interesting thing is not how rich Americans are – we know that – but how poor British billionaires are by world standards. The list is full of Indians, French, Germans, Chinese and Russians, but the highest-ranked Briton comes in at number 119. That is Sir James Dyson, with $14.4bn to his name.

There are only 15 UK people in Bloomberg’s top 500, which makes you wonder whether the UK is not such a good place to make an extreme fortune, or is perhaps a better place to share it out.

The big point, however, is the destruction of wealth that has taken place. In America, the bank JPMorgan Chase reckons that at least $5 trillion has already been destroyed this year, and thinks the number could reach $9 trillion by the end of the year. And of course, while the billionaires have lost the most in absolute terms, the ordinary rank-and-file Americans who invested in cryptocurrencies will have lost badly too.

The Bloomberg index of cryptocurrencies is down 49 per cent this year, and there are two possible reactions to this. One is to ask whether it matters, because the wealth wasn’t really there in the first place – or rather, it only looked as though it was there for a few months, and that was because it had been puffed in an unsustainable boom.

Here in Britain, we did not have the boom: share prices as measured by the FTSE 100 have been pretty much flat. They are up 5 per cent on their level this time last year, and down 1.5 per cent on their level at the beginning of January. If you put all your savings into high-tech shares last November, you have a right to feel upset. But if you bought a couple of years ago, you are still well ahead.

The other reaction involves thinking about the overall impact of the falling market on the real economy. If people feel poorer, do they spend less? This can happen at billionaire level. Maybe the reason Elon Musk is stalling on his bid for Twitter is that he is feeling a bit tight for cash. Or it can happen to a homeowner in Britain, who thinks that because the value of their house has gone up so much, maybe it is worth having a foreign holiday.

The links between asset prices and consumer demand are hard to pin down, but we know they exist. My own feeling is that what happens to property prices on either side of the Atlantic will be more important than what happens to share prices. But the crash in the value of the US high-tech giants must have some kind of depressing effect on Americans’ willingness to splash out.

There is a further concern, which is that we are not through this yet. There will be more bad news throughout the summer from different quarters: on inflation, on various shortages, on food supplies, and so on.

To keep up to speed with all the latest opinions and comment, sign up to our free weekly Voices Dispatches newsletter by clicking here

For the moment, what is happening to US financial markets is mostly a reversal of the excesses that happened last year. The froth is being blown away. It always takes time to realise that financial conditions have changed.

You can see this in house prices. After a long period of increases, people feel they will always get more if they hold out for a better price. For a while that works, but if they hold on for too long, the market changes and they suddenly find there are no buyers, even at the level of a few months earlier. Socially, the fall in prices is most welcome. But it is not much fun for would-be sellers.

So let’s see what happens. We don’t need to worry too much about Messrs Musk and Bezos. We do need to worry about investors who bought shares or crypto at the wrong time and stand to lose money they cannot afford.

Most of all, we need to worry about whether these falling markets will spread beyond the high-tech and crypto enclaves, and move into areas such as residential property. The countless millions of homebuyers matter more than the world’s billionaires.