Blockchain hype resembling dot-com bubble, as companies with “Blockchain” in name see values soar.
At the peak of the tech bubble, adding an 'e-' prefix or '.com' suffix caused the valuations of companies to jump multifold. During this Bitcoin bull run, adding 'Blockchain' seems to have the same effect.
On-line Plc or On-line Blockchain Plc?
On-line Plc is a small, nondescript company in the UK, which has been listed in London since 1996. The Company started as a holding company for a group which developed multiplayer computer games for the internet, and has gradually transformed into a technology investment company.
On 26-Oct-17, the Company announced its intention to change its name from On-line Plc to On-line Blockchain Plc. The Company stated that it had been working for some time to provide systems to support the roll out of Blockchain technologies across a range of applications.
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.
On-line Blockchain Plc is not the only instance where investors have rewarded a company for changing its name. When a biotech company changed its name from Bioptix Inc to Riot Blockchain, its shares surged by 17%. This was in addition to the almost 100% gain the stock had in the days leading to the announcement. It didn’t matter that Bioptix Inc was previously a manufacturer of diagnostic machinery.
Pets.com is one of the classic examples of the dotcom investing mania. The Company, which was founded in August 1998 became widely known through a high profile marketing campaign. At the 2000 Super Bowl, Pets.com paid millions to purchase advertising spots. While the Company increased its sales through its marketing campaign, it did not have a viable business model and spent far more on advertising than it made in revenues. In spite of this, the Company was successful in raising $82Mn in an IPO in early 2000. Its weak fundamentals resulted in the Company collapsing in November 2000 just a couple of years after it was founded. This resulted in the destruction of $300 mln of invested capital, including the money raised by the Company in its IPO.
While Bitcoin's bull run may not play out the way the dotcom bubble did, the signs of irrational investor exuberance are worrying. Multiple companies without a viable business model or product have raised millions of dollars through ICOs. The mere addition of the word Blockchain to the name of a company seems to energize investors. It might be time for investors to take a step back and look at cryptocurrencies dispassionately.