24 May 2019
Many people are rushing into blockchain-related investments after missing out the bitcoin boom. Photo: Reuters
Many people are rushing into blockchain-related investments after missing out the bitcoin boom. Photo: Reuters

Beware of firms donning new identities to ride blockchain boom

The ongoing internet boom is quite different from the dotcom bubble of 2000. Internet giants such as Google, Facebook, Tencent and Alibaba have seen spiking profits, rather than mere rising click rates.

While these giants can somewhat justify their stock price gains, there are also companies that are trying to take advantage of the internet boom even though their core business has little to do with the internet or technology.

A Nasdaq-listed firm Long Island Iced Tea Corp changed its name into Long Blockchain at the end of last year. The juice company claimed that it’s developing a global-scale blockchain technology project. The move pushed up its share price by over five-fold within a few days. Even after a sharp pullback, the company’s market value is still about double the level before the name change.

Hong Kong-listed Pingshan Tea Group (00364.HK) changed its name into Blockchain Group in late 2017, saying the new name reflects the company’s future strategy and refreshes its company image.

With no details about how the company is going to harness blockchain technology, investors have not fallen for the trick and the firm’s share price remains little changed.

It seems Hong Kong investors are more cautious after surviving the dotcom bubble.

In another case, Linekong Interactive (08267.HK), a listed firm on the GEM board, soared 21 percent on Monday. Earnings and share price performance of the small mobile game firm have been lackluster until recently.

Report that the company jointly developed a new online game with a US partner provided a trigger for the jump this week.

The game is based on blockchain technology. Players need to buy virtual pets first on the blockchain.

Each pet has unique DNA and it would never disappear or be stolen. Also, the DNA can be passed to the next generation; owners can play breeding games based on that.

The game can be downloaded for free, but players need to pay for breeding.

It’s reported that the game has already achieved over US$5 million revenue within the first week after the launch.

Hopes of new technology-driven growth have in general benefited a group of small and mid-cap Chinese internet plays. The list includes Kingsoft (03888.HK), Kingdee International Software Group (00268.HK), Meitu (01357.HK), Renren, Shenzhen Xunlei Networking Technologies, Jumei International Holding, etc. These firms all have some businesses linked to blockchain technology.

Popularity of blockchain with investors largely comes from the surging price of bitcoin, which is also a blockchain-based product.

The price of bitcoin soared over ten-fold in US dollar terms last year, making it the best-performing asset class.

But most people have yet to understand how blockchain works or what digital currency is.

Still, many are rushing into any blockchain-related investment after missing out the bitcoin boom.

Most of the dotcom firms vanished as the tide went out after the tech bubble burst in 2001, leaving only a few winners like Google, Amazon, Tencent and Alibaba. Investors should bear this lesson in mind when chasing the bitcoin or blockchain theme.

This article appeared in the Hong Kong Economic Journal on Jan 9

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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