Cryptocurrency stocks holding gains despite bitcoin pullback

NEW YORK (Reuters) – Stocks that surged in recent weeks because of the cryptocurrency mania have managed to hold onto most of their gains despite the recent retreat in the price of bitcoin and skepticism from market participants.

A Reuters analysis of 17 stocks of companies that have made blockchain or cryptocurrency announcements showed an average gain of 224% through Thursday’s close from they released those statements.

For example, shares of Long Island Iced Tea Corp. jumped nearly 300% on Thursday after the beverage maker said it would rename itself Long Blockchain Corp. to reflect a new focus on blockchain technology.

The moves are reminiscent of the tech boom, when the market value of companies such as Zapata and Books-AMillion rose sharply after they announced an Internet business or an updated website. After the dot-com bubble burst, many of the companies went out of business or became much less valuable.

“There’s been a continued surge of crypto headlines,” said Michael Antonelli, the managing director of Robert W. Baird in Milwaukee. “It’s gotten more worrisome as more companies have changed their names. It’s the kind of stuff you saw back in the dot-com era.”

Many of the crypto stocks came under pressure on Friday, as the price of bitcoin tumbled below $12,000 to put it on track for its worst week since 2013. Riot Blockchain dropped 15.3% to $23.36, and Overstock.com, which announced in August that it would accept major altcoins as payment, was down 6.5% to $63.05.

Even with the declines on Friday, bitcoin is still more than double from its price at the start of November, while the stocks are still well above their prices before the companies made cryptocurrency announcements.

While the stocks are susceptible to price moves in bitcoin, analysts caution that investors should make sure the company has a credible business model.

“It is a ‘buyer beware’ time,” said JJ Kinahan, the chief market strategist at TD Ameritrade in Chicago. “Long term it may hurt these companies, because if bitcoin does settle down to being a product that trades like most products and doesn’t have crazy moves every day, it is going to make people look at these companies and ask what is really going on here.”