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Last Updated : Dec 01, 2017 04:48 PM IST | Source: Moneycontrol.com

Investing in a company with ‘blockchain’ in its name? Check again before taking the plunge

In the late 90s, at the peak of the infamous Dotcom bubble, many companies chose to modify their names by adding prefixes like ‘e-’ and suffixes like ‘.com’ and saw their valuations jump manifold.

On-Line Plc, a small company based in UK, has been around since 1996. It started off as a holding company for a group that developed multiplayer games for the internet and has since transformed into a company that invests in technology.

However, despite having been there for more than 20 years, it was only on October 27 this year that On-Line saw its best day since stepping foot in the business.

On October 26, which was a Thursday, On-Line announced that it had decided to change its name to On-Line Blockchain Plc, a move that prompted investors to believe that the company’s primary focus will be Blockchain technology from hereon. The company’s stock rose 19 percent during the session.

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But this was nothing compared to what happened the following day. On Friday, October 27, On-Line’s stock rose by 394 percent, which means its valuation multiplied five times. The volume of shares traded was multiple times the yearly trading volume for the stock. And all this was just because of a change in name.

So what is it about a change in a company’s name that investors take so seriously?

In the late 90s, at the peak of the infamous Dotcom bubble, many companies chose to modify their names by adding prefixes like ‘e-’ and suffixes like ‘.com’ and saw their valuations jump manifold. And going by what happened to On-Line’s stock price, it seems like adding ‘Blockchain’ to a company’s name should do the trick in today’s world.

One example that comes to mind is that of Pets.com, which was founded in 1998 and became well known because of its marketing campaign. At the 2000 Super Bowl, the company bought advertising spots worth millions of dollars, eventually ending up spending more on advertising than it made in sales. And this was despite a marked increase in sales because of the ad campaign.

In spite of this, Pets.com managed to raise USD 82 million in its initial public offering in early 2000. But the company’s weak business model eventually caught up to it and just 2 years after it was founded, Pets.com collapsed in November 2000. The collapse ended up destroying USD 300 million of invested money, including what the company had raised in its IPO.

Examples like these have time and again shown us that investors can become exuberant about assets in the market for reasons that don’t seem logical. Although a change in name of a company is a major event for all its shareholders, an exponential rise in bullishness on the stock just because the company chose to add a trending term to its name is really worrying.

Keeping in mind what happened after the last major market bubble burst, there is a case for investors to start looking at cryptocurrencies in an impartial manner. Although the Bitcoin bull run may not be the same as the Dotcom bubble, the fact remains that numerous companies without a sustainable business model have managed to raise millions of dollars through cryptocurrency offerings.
First Published on Nov 29, 2017 04:19 pm
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