According to a new blogpost written by researchers for the Columbia Law School blog, many companies which promised to incorporate ‘blockchain’ in their business were doing it purely for speculative purposes.
Recently, we reported on how Long Island Iced Tea changed its name to ‘Long Island Blockchain’ in an opportunistic attempt to pump their own stock. The company is currently under investigation by the SEC, but it seems that other companies should also be prosecuted all the same. Columbia Law researchers have found that the majority of companies who claimed to be ‘working on blockchain’ during Dec 2017 ended up doing nothing with the idea.
The blogpost identifies 738 8-Ks containing the words ‘blockchain,’ ‘bitcoin,’ or ‘cryptocurrencies’ in total issued by 224 unique SEC registrants. Shockingly, around 77 percent of all blockchain-related disclosers were purely speculative. This means that they largely were opportunistic in mentioning blockchain, and most did so at the height of the hype cycle in 2017.
The chart below shows the number of ‘speculative’ 8-Ks filed and those which had some precedent in blockchain prior.
These speculative firms would fizzle out by the end of 2018, but still stuck around until Q2 of that year. The resulting ‘blockchain mania’ created upward pressure on stocks. Many were eager to get involved through publically-traded equity securities.
“Given the strong demand but limited supply of equity securities in blockchain-related firms, investors are willing to pay a higher price to purchase the stock of such firms. That fuels further demand as stock prices of blockchain firms enter a positive spiral in which high prices paid by investors drive up returns, which in turn drives more demand for the stock of such firms.”
Although Long Island Blockchain is the worst offender of these opportunistic schemes, it seems clear that many companies followed their lead on a smaller scale. It remains to be seen whether the SEC will investigate these cases.
Do you believe that most companies rode the ‘blockchain mania’ wave just to boost their stock? Let us know your thoughts below in the comments.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.