Spending and borrowing happen to be the two factors that help keep Affirm in business.Īffirm isn’t insulated from higher interest rates, despite charging a 0% annual percentage yield for many BNPL customers. That’s been led by surging prices and higher borrowing rates, which have discouraged customers from spending and borrowing. However, under the surface, Affirm wasn’t what investors thought it was.Ĭonsumer sentiment reached an all-time low in June and is still hovering near all-time lows. The buy-now-pay-later (BNPL) industry sprang into the spotlight last year, propping up the prices of stocks like Affirm (NASDAQ: AFRM). That’s why it’s important to sell out of stocks at the right time or risk even greater losses, as well as opportunity costs. The valuation of unprofitable companies lies on the basis of future free cash flow ( FCF) because they do not currently generate FCF.Īs with 20, many companies that saw their stock prices soar to unreasonable highs in 20 may never see those prices again. That’s because a higher interest rate discounts future cash flows back to the present value at a higher rate, leading to a lower present value.

Unprofitable and speculative companies are most at risk of rising rates. Companies are also less incentivized to borrow with rising rates, which spurns growth, leading to fewer available jobs and the possibility of mass layoffs. With rising prices and rates, customers have less incentive to spend and borrow, weakening the economy.

Much of this year’s decline can be attributed to the Federal Reserve raising interest rates in an effort to combat inflation. The insolvency of FTX drove the price of Bitcoin ( BTC-USD) below $17,000 for the first time since November 2020, bringing its yearly loss to over 60%.

The crypto market has fallen too, as investors realize that a bet on crypto is essentially a bet on a high-risk asset. Even the seemingly invincible tech giants, such as Netflix (NASDAQ: NFLX), have witnessed year-to-date (YTD) declines of over 50%. Stocks across the board have plunged in 2022.

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