Cryptocurrency Mania to End Like the Internet Bubble?
Cryptocurrency mania is in full gear. It feels like we are back in 1999. Investors beware.
You see, if you were even remotely involved in the markets during the Internet bubble, you would attest to this; if a company mentioned “Internet” in its press releases, its stock price would soar.
During the Internet bubble, there were companies that didn’t even have revenue, but their stock prices were soaring because they had something to do with the Internet.
Now, we see something very similar.
These Stocks Soaring Just Because They Mentioned Blockchain
All a company has to do these days is mention “blockchain” or “cryptocurrency” in its name or press releases and the stock price soars.
Look at the chart below of Eastman Kodak Company (NYSE:KODK).
Chart courtesy of StockCharts.com
Notice the spike in the last few days?
This is not because the photography company reported stellar financial performance or revolutionized film technology. It was simply because the company said it would launch a cryptocurrency called “KODAKCoin” and would utilize blockchain technology. (Source: “KODAK and WENN Digital Partner to Launch Major Blockchain Initiative and Cryptocurrency,” Eastman Kodak Company, January 9, 2018.)
In a matter of two days, the stock price jumped well over 250%. Before the news, KODK stock traded near $3.00.
Look at another chart below. It shows the price action of a company called Long Blockchain Corp (NASDAQ:LBCC).
Chart courtesy of StockCharts.com
Until mid-December, this company was called Long Island Iced Tea Corp. Suddenly, it had a change of heart. It changed its name to Long Blockchain Corp. Investors flocked to buy the stock. (Source: “Long Island Iced Tea Soars After Changing Its Name to Long Blockchain,” Bloomberg, December 21, 2017.)
Before the news, LDCC stock traded below $2.00. It trades at $5.55 now and went as high as $9.00.
Lastly, look at another chart. It shows the price action of Riot Blockchain Inc (NASDAQ:RIOT).
Chart courtesy of StockCharts.com
Notice how, all of a sudden, in the past few months, the stock price has jumped immensely?
Until mid-October, this company was called Boptix and was a biotechnology company. Now, it’s a blockchain company and mines cryptocurrencies.
In September, this company’s stock was just around $3.50. It trades close to $23.00 now and went as high as $46.00 in December.
What’s Next with Cryptocurrency Mania?
Dear reader, what we see these days is a clear sign of mania. There’s too much speculation and not much attention is being given to the fundamentals.
These days, “cryptocurrency” and “blockchain” have become buzzwords like “Internet” was in 1999. I truly like blockchain technology and what it could do. But I see it as something in the early stages.
Here’s what I know; manias eventually do end. There’s usually a moment that “separates the men from the boys.” We saw it happen with Internet stocks as well. The real companies remained and those that were just riding the wave got washed away.
I will end with this; it’s important to pay attention to details. Don’t just buy the story the company is giving you. Look at the numbers and see if it makes sense. In the next five years, many of the cryptocurrencies may not be around. So, tread lightly.