Crypto Public Markets

Crypto Trash Fire Attracts Public Market Idiots

The total value of cryptos has crested the $600 billion mark, boasting massive appreciation since the start of the year when the same asset group was worth a more modest $18 billion or so, according to industry watcher CoinMarketCap.

The explosion in crypto value has been nothing short of staggering. And as with any movement in technology, crypto has attracted a host of morons, fraudsters, thieves, and boosters.

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It’s even managed to attract the attention of public companies. No, not Microsoft doing blockchain on Azure or IBM doing whatever this is. Instead, public companies that lack public attention are slathering themselves with a thin patina of crypto in hopes of attracting a market spike.

Think of it like smearing yourself in shit to attract flies.

And they are getting what they want. To understand how public investors could be so easily hoodwinked by hokum, let’s rewind the clock to a different time in which tech also lost its mind.

What Was This Dotcom Thing?

At one point, the Internet was new, and it was a thing, and everyone wanted to know about the thing and do the thing for good reason. If you were a thing-focused company, which is to say some sort of Internet-related entity, you were worth more. Instantly.

It’s something like tech-like companies arguing for tech-like revenue multiples in the current cycle; however, in the early 2000’s, it was more flagrant and the effects were far larger. (For a deeper look at the climate of those times, the rude F’d Companies is a good place to start.)

How silly did things get back around 2000? Quite silly. Famously silly, really, as this 2003 piece that references the 2000-era dotcom boom makes plain:

Back during the bubble years, companies were seeing their stock prices shoot up if they simply added an “e-” prefix to their name and/or a “.com” to the end. Call it “prefix investing.” There were also more than a few stories of companies having their stock prices driven up after a similarly named company had some good news happen.

But that’s just an overview of how weird the market got back when AOL wasn’t yet a punchline. Let’s look at a single example of how far from fundamentals the market managed to get itself back when Harry Potter wasn’t a complete set.

Here’s a piece from 2000 that includes one hell of a narrative arc:

Perhaps the most amazing stock of the year was, formerly known as Scandinavia. Once a closed-end fund specializing in Scandinavian stocks, and then an operating company that owned a hotel in the Canary Islands, it made a small investment in an Internet company last year. Before it disclosed that investment, the family of Alexander Vik, the company’s chief executive, was given options to buy a million shares of stock, at a price of $3.25 each. The shares ended 1998 at $3.75, or $1.25 adjusted for two subsequent splits. They ended 1999 at $139.50, an increase of 11,060 percent. The Viks’ option position is now valued at $415 million.

Read that again, as it is incredible.

In short, if you were an Internet company, or you became a company that could lay title to any portion of the word “Internet,” your share price would rise.

That should sound familiar.

Bitcoin Goes Dotcom 2.0

As the saying goes, all this has happened before and will happen again. Such is the case with extant public companies and the bitcoin boom.

Some investors cannot, it turns out, buy bitcoin directly. So they may hunt for alternative investments that can provide exposure to the asset class. That makes public companies that work with bitcoin, and blockchain technologies more broadly, extra appealing to some.

That’s the theory behind why an already-public company that works with blockchain tech might fairly rise in value.

But as the dotcom examples detailed, not everyone who rides a particular boom really deserves to do so. Some companies, in contrast, spray paint themselves purple and then claim to be a tulip.

That’s what we are seeing today. For example, one company called Riot Blockchain is having a great few months, as The Street reports. Its shares are up “over 600% since early September, and […] about 250% since mid-November.”

But The Street has the rest of the terrifying story:

The funny thing is, until a few months ago, Riot had nothing at all to do with Bitcoin or blockchain technologies. The company was a struggling micro-cap biotech firm named Bioptix Inc. — one that had seen layoffs in January and a CEO change in April, and was trying to commercialize medical diagnostics instruments and IP related to a technology called Enhanced Surface Plasmon Resonance (eSPR).

Then, on Oct. 4, Bioptix announced it’s changing its name to Riot Blockchain and disclosed a “strategic investment” — later said to be a 12% stake obtained for $3 million — in Canadian cryptocurrency exchange Coinsquare.

That’s not so good. But this is hardly the only example we can point to.

There’s this December Bloomberg headline: “Bitcoin Fever Makes Pot Stocks Yesterday’s News in Canada.” Or, well, this other December Bloomberg headline: “This Mining Company Soared 159% After Saying It’s Buying a Crypto Firm.” And just for kicks, here is another December Bloomberg headline: “A Small Fintech Stock Surged 2,400% in a Week After Announcing It’s a Crypto Company.”

But don’t think that it’s only Bloomberg on the beat. Hell, even former apparel companies are getting in on the fun.

One example from CoinTelegraph stood out as well. Reported earlier this quarter, On-Line Plc, which had “been listed in London since 1996,” recently told the world that it was changing its name to Blockchain Plc. The company indicated to the public that it had been working on blockchain tech “for some time.”

The result? CoinTelegraph has the damage:

The decision of the Company to change its name provided a boost to the share price, resulting in the Company gaining 19% on Thursday. This turned out to be pretty insignificant, compared to what happened on Friday. The share price of the Company increased by 400%, from 17p the previous day to 84p. Shares closed the day at 46.50p, a 173% gain over the previous day’s close. The volume traded on Friday was multiple times the yearly trading volume of the Company.

Yes, an audible sigh is perfectly fine at this juncture.

This Is Stupid

The same silliness that took hold in the dotcom era is now repeating itself in the current moment, with “dotcom” scratched out and replaced with “HODL.”

Perhaps every real technological boom demands a period of excess. Certainly, the dotcom bust didn’t lead to the Internet extinguishment. And the slate-computing crash didn’t preclude the iPhone. But we’re past the moment when things merely looked a bit overheated in crypto.

Recall that $600 billion number? Folks are buying into crypto the boom with money they don’t even have, as venture capitalist Mark Suster recently made plain:

It wasn’t too long ago that it was said, in defense of the current tech bubble, that when it went bang, it wouldn’t harm normal people. After all, most of the value that would be deleted in a correction was locked up in private companies that your parents could not invest in. Well, now you can get your family hooked on crypto instead.

And if crypto undergoes the sort of correction, regular people can now get hurt. Just like before.

iStockPhoto / retrorocket

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