Stock trader Peter Tuchman works on the floor of the New York Stock Exchange.
Photo: Spencer Platt via Getty Images

Fintech stocks see red as investors confront inflation

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: There's market madness for crypto and fintech, South Korea moves forward with its CBDC, and the sector sets a funding record.

On the daily

Welcome to the second-ever daily edition of your favorite fintech newsletter. Today, Ben and Tomio looked at how the market’s gyrations affected crypto and fintech stocks, while Lindsey kept an eye on the Bank of Korea’s CBDC plans. 2021 was a record year for the sector’s VC funding — and you can expect the latest fintech deals here every Tuesday.

— Owen Thomas (email | twitter)

Market madness

Fintech stocks had been some of the best-performing during the pandemic. But in recent weeks they’ve been dropping with the rest of tech.

Most fintech stocks are seeing red in 2022, even with wild swings Monday that saw tech claw back some losses. PayPal is down close to 17% year-to-date, close to its 52-week low of $152.08. Block is down 28.5% year-to-date, and at one point Monday was close to its 52-week low of $102. SoFi is down over 15% year-to-date and Affirm is down close to 39%.

Overall the market is adjusting to the Fed preparing to hike interest rates, said Mark Palmer, managing director at BTIG, which is affecting all assets, but tech in particular.

As goes tech, so goes fintech. Tech and fintech stocks have had sky-high valuations — some with price-to-earnings ratios without the, um, earnings.

  • Tech stocks are often valued based on a discounted cash flow model. With interest rates set to rise, the current value of future earnings drops.
  • And inflation means every penny of earnings is worth less.
  • That weighs heaviest on companies where profitability is a distant goal — or where “forecast earnings power is backloaded,” said Brian Graham, partner at Klaros Group.

Despite the market gyrations, consumers still have cash to spend. That’s good news for fintech companies.

  • Households squirreled away money during the pandemic. “The fact that the stock market is off a little bit doesn't change the fact that consumer balance sheets are just unbelievably strong,” Graham said.
  • Consumer-facing companies should benefit from strong economic growth. Despite beaten-down stocks, Palmer sees potential for PayPal, Block and a few other names to build out their super apps this year and consolidate the fintech market.
  • Block in particular could take its popular Cash App overseas, tapping unbanked or underbanked customers outside the U.S., Palmer added.

Rising rates could lift some boats. Inflation can erode consumers’ spending power, but some companies can benefit from higher interest rates.

  • Roboadvisors could lure customers with higher rates on savings, Graham said.
  • The mortgage market is rate-sensitive, and affordability is already a problem. But online lending could be unscathed, if credit card rates rise and the spread lenders earn on them remains the same.

The fintech sector is tech, but it’s also finance. In the short term, fintech shares will get dragged along with tech. In the longer term, what happens to the economy and interest rates may prove more meaningful. And critically, the benefits will be unevenly distributed. The nimblest will be the ones to profit.

— Tomio Geron (email | twitter)


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On the money

Are we in another crypto winter? Protocol Fintech’s Ben Pimentel digs into the larger meaning of the latest bitcoin rout.

The Bank of Korea successfully completed the first phase of its CBDC pilot program and is gearing up for more. It’s not the only country moving forward with a digital currency. China, Nigeria and the UAE are just some of the many countries that have also rolled out pilot programs.

What in the world are mystery box NFT sneakers? Sneakmart, a French startup, is launching Metakicks, the first ever NFT sneaker collection distributed through mystery boxes. Only 625 of the 6,250 NFT mystery boxes will contain physical limited-edition sneakers. It’s another example of how NFTs are transforming collectible markets, with Nike purchasing a virtual shoe company just last month.

Latin America tripled 2020’s VC funding total in 2021, with a record $15.3 billion raised by startups. Of that total, 39% went to fintech startups, according to LAVCA.

Attackers stole over $1 million in NFTs from OpenSea users. At least three attackers exploited a bug on OpenSea to buy at least eight NFTs way under market value, including some Bored Apes.

Biden wants to regulate crypto from the White House. Bloomberg reported that the Biden administration is set to issue an executive order on crypto next month. The directive will ask for federal agencies to report back later this year.

Deal flow

Aver raised $7.5 million. The peer-to-peer betting exchange’s seed round was led by Jump Crypto.

Blockchain Founders Fund raised $75 million. Investors in the Singapore-based VC fund include NEO Global Capital, Appworks, Baksh Capital, Octava and Sebastien Borget, COO of The Sandbox.

Canalyst raised $70 million. The financial data and analytics company’s Series C round was led by Dragoneer Investment Group.

Core Scientific merged with Power & Digital Infrastructure Acquisition Corp. The combined entity is now one of the largest publicly traded bitcoin miners.

Doconomy raised $19 million. The climate tech firm’s equity round was led by CommerzVentures.

Tiger Global Management led a $50 million round for the Graph Foundation. Other investors in the blockchain indexing company include FinTech Collective and Fenbushi Capital, who were all issued a token called The Graph.

Habi acquired its Mexican competition, OKOL. The Softbank-backed Colombian real estate startup bought OKOL, the parent of online marketplace, making it the largest iBuyer in Mexico.

Route is now worth $1.2 billion. The ecommerce package-tracking company’s latest funding round raised $200 million, which Route says will go towards developing increased personalization.

Sayata added another $35 million to its series A round. With funding from Pitango Growth, Hanaco Ventures and others, the marketplace for insurance brokers wants to speed the addition of new business insurance lines.

Vartana raised $57 million. I80 Group led a seed funding round for the provider of “buy now, pay later” tools.


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Thanks for reading — see you Wednesday!

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