This was followed last month by shell company Stapleton Capital, which changed its name to Blockchain Worldwide, having “identified a number of blockchain technology investment opportunities in recent months”. Again, this sparked a share-price frenzy and the stock rose to 9p on the back of the announcement.
Although these moves were genuine hot streaks, experts have cautioned that changing name or rebranding as a crypto-currency firm is just a cheap way to drum up interest in a stock.
Gary McFarlane at Interactive Investor says: “None of this is illegal but it’s not a reputable way of conducting business and investors should not be buying stock on the back of a name change. Investors need to be careful and do their research as there is a lot of exuberance spilling over into mainstream markets at the moment.”
But Rodger Sargent, boss at Blockchain Worldwide, an early Sky Bet backer defended his company’s rebrand saying: ‘The tail did wag the dog and I’m not a coder but I have been bringing shells to market for the last twenty years. What happens with blockchain will not become clear overnight and there will be blind alleys gone down and wrong turns taken. Identifying deals is what I do and I have made investors a lot of money over the years.’
McFarlane said it was inevitable that UK authorities would have to increase regulation over the coming months after a US lead.
Just this week, Lloyds and Virgin Money have moved to try to stop customers investing in crypto-currencies amid fears of the bubble bursting, further damaging the industry’s image. Earlier this month America’s Securities and Exchange Commission (SEC) stepped in and suspended the trading of Hong Kong-based and US-listed UBI Blockchain, citing “questions of the accuracy of assertions… regarding the company’s business operations; and concerns about recent, unusual and unexplained market activity in the company’s Class A common stock since at least November 2017.”
The US regulator also halted trading of The Crypto Company in December, citing similar anomalies in trading. Shares in the business had risen 2700% in a single month.
McFarlane adds: “The SEC has shown its teeth and is prepared to step in if they believe a company is making false claims. I don’t see much of that in the UK and regulators need to make clear the risks involved.”
So far, the Financial Conduct Authority appears happy to take a back seat on the matter and see how the craze plays out.
Before Christmas, FCA chief executive Andrew Bailey said that buying bitcoin posed similar risks to gambling, adding that since it was neither backed by central authorities nor regulated, the crypto-currency was not a safe investment.
The FCA remains tight-lipped on the matter although a source at the regulator questioned whether equity investing was the best way to be involved in the crypto-currency market, given its immaturity. He says: “Buying shares in a company to get exposure to crypto-currency does not seem right. Why not do it yourself?”
The present climate feels heady and its scale is unprecedented. The crypto-currency phenomenon is fast becoming the biggest move in any asset class for 395 years, only trailing Dutch tulips in 1634-37 and the dot-com boom of the Nineties.
At the moment, the total market capitalisation of all crypto-currencies collectively stands at $397 billion.
Nicholas Colas, co-founder of DataTrek Research, says: “My advice would be to look at the one-year volatility chart and decide if it’s right. But don’t put in any more than the most expensive meal you have ever had. The most important question is, does this technology fit into the existing regulatory structure of global finance?”
