What's really in a name?
It was often touted as one of the clearest signs of irrational exuberance during the tech bubble of 2000. Stories of companies that were able to rally in price merely by adding “.com” to their name. The mere thought that the company could be launching online was enough to push the price over the edge.
Now it seems as if this could indeed be playing out in the blockchain space today. Given the massive amount of interest in cryptocurrency and blockchain technology, many people are of the view that larger adoption will be the golden ticket that should reverse their fortune.
Is this a sign of mass adoption or more a sign of irrational exuberance?
Case 1: On-line Plc
If one were to take a look at the website of On-line Plc, you would be hard-pressed to find any evidence of a functioning company let alone one that was listed on the London Stock Exchange. The company was listed in 1996 and started out as a holding company for those that developed multiplayer games yet moved away from that into other technology investments.
Since then, there was no interest whatsoever in the company or the investments that it was making. Yet, this all changed few days ago when on the 26th of October when the company decided to change its name. Merely changing the name from On-line Plc to On-line Blockchain Plc had a massive effect on the company's share price.
When the company made their name change and disclosed that they would like to implement “blockchain” solutions across a range of applications, their share price shot up by 19%. Yet, it seemed as if the next day things progressed to a new level as the price of the company increased by over 400% in a day.
Moreover, one can see that it was not just a factor of general illiquidity in the shares of the company. This is because volume was also at sky high levels. In fact, the volume on that day was many multiples of the volume for the entire year. Of course, this may be an anomaly if it didn't happen with another company as well.
Case 2: Bioptix Inc
A biotech company that was involved in the manufacture of diagnostic machinery would be an unlikely adopter of blockchain technology. However, that did not change the impact that a name change had on the price of the company's shares. After changing the name of the company to Riot Blockchain the share prices rallied by over 17%.
However, the mere name change itself was not the impetus for the move in the price. It was the mere rumours that the company would be changing it's name that caused the price to rally and double its price prior to the actual announcement itself. Hence, we have a share price rally on a rumour of a name change.
Reason for Concern?
Most financial professionals tend to feel slightly queasy about the notion of irrational exuberance. Of course, they have reason to feel so with the final result of the tech crash a cursory tale.
Yet, given the large amount of liquidity and interest from sophisticated institutional investors, it seems unlikely that Bitcoin is in a bubble. The reason that there was a tech crash was because people came to the conclusion that the underlying companies would never produce the revenues that warranted the valuations.
Most investors know exactly why Bitcoin has value and they don't expect much more than that. It also seems unlikely that demand for a fundamentally revolutionary technology could dry up the next day.
However, there are indeed signs of a bubble in the ICO space as a range of start-ups raise funding through these coin offerings. Many of these start-ups have no product, no business and are nothing more than grand ideas with good marketing. Hence, caution should be applied to this section of cryptocurrencies and blockchain solution.
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