We teamed up with our partner TradingView.com to create this list of the 10 most interesting trades from a tumultuous 2022. In what was a historic bear market in almost all global asset classes—stocks, cryptocurrency, bonds, and just about everything else was down—the majority of these trades are on the short side.
Energy was one of the few sectors that actually posted a good year. Another outperformer was the U.S. dollar (USD). We recap it all below, including charts that illustrate the drama of each trade, stats about each, and key takeaways heading into 2023.
- 2022 was a tumultuous year marked by high volatility in the stock market.
- Prices were down over 20% (and often a lot more) in most asset classes. A drop of 20% typically signifies a bear market.
- Energy was the best-performing sector in the S&P 500.
- There were notable blow-ups in 2022, including FTX Trading Ltd., the Bahamas-based cryptocurrency exchange.
- 2022 was a good year to go short in many sectors, securities, and asset classes.
When TerraUSD (UST)—the flawed stablecoin at the center of the Terra ecosystem—depegged from the U.S. dollar in May this year, that led to a $60 billion wipeout and the complete collapse of one of the largest hedge funds in the crypto space: Three Arrows Capital. Luna, the Layer 1 token at the center of the ecosystem, ended up dropping to zero value from $86 in just under a week. This event had contagion effects that affected the whole industry and led to hundreds of high-profile bankruptcies, insolvencies, suspended withdrawals, and more.
ExxonMobil and other major oil companies benefited from higher oil prices in 2022, as chronic global underinvestment in processing & extraction facilities in the last few years led to a spike in prices as post-pandemic demand for energy recovered more quickly than many expected. The sanctions on Russia earlier this year also exacerbated global supply shortages and led to soaring profits for ExxonMobil and its peers.
Long U.S. Dollar
The dollar experienced one of its strongest years ever as the Fed was the first major central bank to begin tackling the problem of persistent inflation. As the federal funds rate was hiked over the course of 2022, USD interest rates became more and more attractive versus global counterparts, leading to a massive shift in global capital, and impressive outperformance for USD holders.
Investors in FTT, the native token of the now-failed FTX cryptocurrency exchange, have had a rough year. Throughout most of 2022, general crypto malaise hurt the token as reduced trading volumes and profits from FTX led to lower buy-and-burn numbers. Then, in early November, whispers began that FTX wouldn’t be able to back withdrawals for users. Over the course of the next week and a half, the value of FTT dropped more than 90% as it became clear that FTX had lent user deposits to other ventures related to FTX founder and now-former CEO Sam Bankman-Fried and used FTT to backstop users' deposits. As the price fell, the house of cards came tumbling down, rendering FTT ostensibly worthless.
As monetary tightening continued throughout 2022, many growth stocks got hit as the present value of their future profits shrank inversely with rising risk-free interest rates. This was doubly true for high-growth companies that had no profits to speak of, like many of the holdings found within Cathie Wood's flagship exchange-traded fund (ETF), ARK Innovation ETF (ARKK). The share price of the ETF managed by Wood's investment firm, ARK Invest—famous for its early bet on Tesla and notable outperformance in 2020 and 2021—is currently down more than 60% on the year.
Long Natural Gas
Natural gas has navigated a supply-and-demand situation similar to that of oil this year. Heightened demand, coupled with stable supply, led to gains for the commodity early in the year. However, with the advent of the conflict in Ukraine and sanctions on Russia, shortages, especially in Europe, led to skyrocketing prices as EU countries scrambled to figure out how they were going to provide energy to their residents in the winter ahead. The Nord Stream 2 pipeline shutdown early in the year and explosions in September also put further stress on supplies.
Meta, formerly known as Facebook, has had a transformational year. Late in 2021 the company announced its rebranding to Meta, meant to underscore its business shift to augmented and virtual reality. This new focus meant it poured billions of dollars into research & development (R&D). It has had an uphill battle convincing the public that the metaverse really is the next big thing. Investors haven’t taken the news well, dumping the stock and causing its price to plunge to as low as $88 from more than $300 per share. Also hurting performance are declining user numbers for Meta's legacy products and rising interest rates.
Short Treasurys/Long Yield
As the Fed continued to raise rates in 2022, government bond yields rose in tandem. And, as bond yields rise, bond prices fall. TLT, one of the biggest ETFs for long-dated government bonds, is down more than 28% on the year so far, underscoring one of the worst years for bonds on record.
Coinbase launched its initial public offering (IPO) in April of 2021 at around $380 a share, making the premiere U.S.-based crypto exchange one of the most valuable financial companies in the world. Fast forward to 2022, though, and it’s a completely different story. Crypto’s total market capitalization peaked in November of 2021 as the Fed began hiking interest rates, and 2022 has been nothing short of disastrous for this asset class. The biggest crypto assets—Bitcoin and Ethereum—are down more than 60% in value on the year, and the high trading volumes that defined the speculative frenzy in 2021 are now nowhere to be seen. Not to mention the Luna and FTX collapses (see Luna and FTT trades above), which are having far-reaching consequences across the crypto ecosystem. Coinbase is still kicking, but with a stock price that’s down more than 80% on the year.
Shares of Beyond Meat (BYND) also had a rough 2022, falling nearly 80% on the year. The plant-based meat behemoth’s losses have widened, and investors have questioned the basic unit economics of the company. As a result, the big brand’s market cap has suffered.
The Bottom Line
The bear market of 2022 proved to be a difficult place for most traders and investors trying to make money in the financial markets. Apart from the energy sector, which showed significant gains for the year, most of the other sectors of the Standard & Poor's (S&P) 500 were in the red for 2022. As this summary shows, even though there were few interesting trades to be found on the long side, there were more positive opportunities for those brave enough to take the short side.