If you happened to be lucky or smart enough to step into a Riot Blockchain Inc (NASDAQ:RIOT) position prior to the middle of November, then congratulations. Even after RIOT stock’s recent lull, you’re still up somewhere on the order of 300%.
Just out of curiosity though, are you aware this company wasn’t even close to being in the blockchain business until early October, and wasn’t technically in the Bitcoin business until early November?
I only ask because, were it any other mania at any other time, Riot Blockchain would have gone mostly unnoticed. Moreover, the few people who did take notice would have only done so as a precursor of poking fun of the fact that the move into a whole new line of business was comically desperate.
Whatever the case, the bigger question is, do you realize this is all ultimately going to end as harshly as tulip mania in 1637, the 1999 dot-com bubble, solar panel mania from 2008 and 2012’s 3D printing craze?
BiOptix Inc. The name probably won’t ring a bell for most investors, though for anyone reading this it arguably should. That was the name of the penny stock you now know as Riot Blockchain until Oct. 4, when the company changed its name to reflect a new focus on buying cryptocurrency and blockchain businesses.
There’s nothing inherently wrong with a corporate redirection. It happens all the time. Though it is rare to see one this radical… and this fad driven.
Yes, you read that right. This whole overhaul was fad driven… the dreaded ‘F’ word in the world of handicapping stocks, as fads are generally short-lived. This wasn’t a strategic move into a well-thought-out arena that would leverage the company’s existing portfolio and IP. This was a biotech company struggling to make it in the world of biotech, and the most accessible means of keeping the company alive was jumping on 2017’s fastest-moving bandwagon.
Be that as it may, it’s still not entirely clear how “in” the blockchain business Riot Blockchain is. In early November it bought 1,200 bitcoin mining computers, and presumably has put them to use in the meantime. The rest of its announced actions have only been fundraisers or acquisitions of companies already in cryptocurrency business. It doesn’t appear to be “doing” much in the way of making money with cryptocurrency.
That’s a tough truth to digest, but it’s still the truth.
Riot Blockchain’s foray into the cryptocurrency world, strange as it may be, isn’t the most outlandish one we’ve seen this month. Just this week, beverage maker Long Island Iced Tea (which sells, not surprisingly, iced tea) changed its name to Long Blockchain Corp (NASDAQ:LTEA) to better explain its new focus on “the exploration of and investment in opportunities that leverage the benefits of blockchain technology,” according to a company press release.
Last month, a penny stock trading under the name Omni Global Technologies changed its name to Blockchain Industries Inc (OTCMKTS:OMGT) saying its “primary near-term corporate objective is to build a diversified financial technology company focused on blockchain.” OMGT was trading around 10 cents a share before the announcement was made. Now it’s trading above $18, after pulling back from $28 earlier this month.
This has become simply ridiculous. Never even mind the fact that the “new directions” all three of the aforementioned companies tell alarmingly little about how they’re going to turn blockchain into a viable, revenue-generating, profitable business model.
Riot Blockchain’s new direction is all just part of a rush to get into something that few people even understand. All most traders care to know right now is, bitcoin is going higher, and it doesn’t look like it will ever stop.
It will, of course. It always does, and it tends to stop right when the most people think it won’t. Once it does, the meteoric rise of RIOT stock could easily be wiped away.
With that as the backdrop (and to give credit where it’s due), it was Joseph Stiglitz, professor at Columbia University and former chief economist for the World Bank, who made the most concise sense of what’s really happening here. He explained last month, “The value of a bitcoin today is expectations of what the bitcoin is going to be tomorrow.”
Problem is, that’s the only thing behind the value of bitcoin, and all cryptocurrency, today. Once the bubble is popped, RIOT stock and all of its kindred names will crumble as quickly as they were catapulted.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.