INVESTORS, FIRMS HOP ON BLOCKCHAIN BANDWAGON
Massive rise of cryptocurrencies fuels name changes, reverse takeovers
Glance Technologies Inc. has had a pretty good time recently.
The Vancouver-based mobile payment company’s stock price on the Canadian Stock Exchange is up by 1,000 per cent from late August, shooting to $2 on Thursday from 27 cents on Aug. 24. On Nov. 27, it reached even greater heights, hitting a peak of $3.84.
Glance has been public for about a year and posted a 2017 loss of $2.2 million, but it’s possible investors reviewed the company’s fundamentals and decided en masse it’s got potential. But it’s more likely that a series of announcements last fall about the company’s plans to incorporate cryptocurrencies into its business had something to do with the market’s love.
Glance is one of more than 30 public companies that made blockchain-related announcements or added the word “blockchain” to their name over the past 13 months. Those companies experienced a median stock price increase of 265 per cent, according to an analysis by Autonomous Research.
The trend has drawn widespread comparisons to the dot-com bubble of the late 1990s, when companies that added .com to their names saw a median share price increase of 118 per cent, according to the same analysis.
Everyone knows how that bubble ended for most of those companies, but executives participating in the current blockchain mania would also like to remind you that a handful of winners such as Amazon.com Inc. and eBay Inc. survived the bust and thrived.
With the price of bitcoin going from US$1,000 on Jan. 1, 2017 to more than US$13,000 on the first day of 2018, more companies and investors than ever are hungry for ways to participate in a phe- nomenon that’s been called both a massive speculative bubble and the most potentially disruptive technological innovation since the internet.
“It’s kind of like saying, in 1992, ‘There’s already a couple of internet companies. It doesn’t make sense to have more,’” said Glance chief executive Desmond Griffin. “The market is still early and young in terms of the blockchain space. It’s still a small part of the overall world economy and I think it will affect a broad section of the world economy. I think it’s an exciting time.”
The past week alone has seen a flurry of blockchain announcements from companies big and small.
For example, Eastman Kodak Co. on Tuesday announced plans to launch a cryptocurrency called KodakCoin to help photographers with digital rights management, and its stock price tripled the day after. Enterprise blockchain platform Ripple’s cryptocurrency XRP surged Thursday after the company announced a pilot project with Moneygram International Inc., less than a week after unconfirmed reports of a partnership with The Western Union Co. sent that payment services company’s shares up 12 per cent over the weekend.
And the company with the most widely mocked blockchain name change of all announced a tweak to its new business model. Long Blockchain Corp. — formerly known as Long Island Iced Tea Corp. — on Tuesday walked back its plan to raise US$8.4 million to finance the purchase of cryptocurrency mining rigs through a share sale, although the company still says it plans to buy the rigs.
Canadian stock exchanges have also had their fair share of such activity. Canadian mining companies that have made blockchain an- nouncements or become vehicles for blockchain companies to go public through reverse takeovers include MX Gold Corp., Axe Exploration Inc. and Leeta Gold Corp., now Hive Blockchain Technologies Ltd.
Harry Pokrandt, chief executive of Vancouver-based Hive, said it’s not entirely fair to lump reverse takeovers in with the blockchain name change trend. Leeta didn’t “pivot to blockchain.” Rather, Hive is an entirely different company that used the acquisition of a publicly traded mining firm to obtain a listing on the TSX-V, he said.
“The process is not unique to blockchain and is very common among all sectors,” Pokrandt said in an email. “The former activities of the Leeta Gold have nothing to do with Hive Blockchain, nor are any of the previous management involved.”
Investment bank GMP Capital Inc. has underwritten some of these blockchain reverse takeovers, and chief executive Harris Fricker has said he hopes to do many more in 2018. He said he agrees that a correction will probably weed out many of the companies hopping on the trend eventually, but a select few will go on to massive success.
“Blockchain is best viewed as an entire ecosystem. This ecosystem will create enormous value over time,” Fricker said in an email. “The ecosystem may be compelling, but picking which species will prevail is a whole different kettle of fish. So there will be booms and busts and winners and losers.”
Some of these firms may very well go on to be the next Amazon or eBay, but Gil Luria, director of research at D.A. Davidson & Co., said investors should consider it a red flag if a public company is suddenly getting involved in blockchain.
“People are getting misled by these companies that are making it seem like they’re in the blockchain business, when they’re either not or just entered it,” he said. “Any company that’s just now starting in bitcoin or blockchain is probably many years away from generating any real revenue or profits.”
Even companies that have been working with bitcoin and other cryptocurrencies for years have had trouble developing widely used applications based on the technology.
Claims that blockchain technology is disrupting or revolutionizing various industries are common, but, for now, there are few practical uses for it beyond making speculative investments and encouraging others to do the same by issuing new crypto-tokens in an initial coin offering, or ICO.
Indeed, the very aspects that make blockchain technology promising — such as decentralization, censorship- resistance and immutability — also make it cumbersome, energy-intensive and prone to regulatory issues.
Developers may solve those problems and blockchain will revolutionize everything from the finance industry to photography copyright, but it’s also possible they won’t.
Anthony Lacavera, founder of the telecommunications provider formerly known as Wind Mobile, said he believes there are opportunities to generate revenue from blockchain in the near term, but the best investments are longterm bets.
On Tuesday, Lacavera launched a new company called Globalive Technology Partners, through which he intends to invest in fastgrowing companies and help them develop and commercialize blockchain applications.
“I guess I could have called it Globalive Blockchain if I wanted to get in on the bandwagon,” he said with a laugh. “I’m saying to investors, ‘Look, I’m not the right person for you to invest with if your objective is to try to get 1,000 per cent return on a cryptocurrency or something. That’s not what we’re about.’”
Lacavera said today’s blockchain frenzy reminds him of his first business-making websites in the late ’90s, when a home page was the hot new thing every company needed to have. He pointed to projections made at the time about how big the internet and e-commerce could become that seemed wild, but, as it turns out, actually underestimated the size of the market.
The analogy, however, highlights a key difference between the dotcom bubble and today’s blockchain frenzy.
The internet may have been in its infancy two decades ago, but ordinary people were already actively using it, tying up the family phone line to talk in chat rooms, make fan web pages on GeoCities and ask Jeeves their most intimate questions.
Blockchain is also in its infancy, but it’s not in widespread use by mainstream consumers and businesses. That makes it hard to find an explanation for the massive stock price gains in anything related to blockchain beyond speculation and the fear of missing out.
“Every time there’s a series of events like this, there will be a development that makes people realize there is nothing there,” said Luria at D.A. Davidson. “This will be short lived.”
Blockchain is best viewed as an entire ecosystem. ... There will be booms and busts and winners and losers.