Companies pivoting to, or just showing an interest in, cryptocurrencies and associated technologies have resulted in a sudden burst in share price.
Kodak hit headlines this week when the company announced a plan to launch “photo-centric cryptocurrency to empower photographers and agencies to take greater control in image rights management”. In other words, the venerable camera company is getting in on the bitcoin hype.
Shares in Kodak, which had been largely flat for the previous three months and steadily declining for the five years before that, more than doubled in the following 24 hours, as the company insisted that it was not simply pumping out “hot buzzwords”.
“For photographers who’ve long struggled to assert control over their work and how it’s used, these buzzwords are the keys to solving what felt like an unsolvable problem,” Kodak CEO Jeff Clarke said. Instead, the company says, it can apply those technologies – as well as further buzzwords including “artificial intelligence technology” that enables photographers to “receive payment faster” to build a sort of decentralised stock photo library.
How precisely the system will work remains unclear: a “lite paper”, detailing the technical basics of the idea, is set to be released in three weeks time. But a lack of detail has never hurt anyone announcing a corporate interest in cryptocurrencies: over and over again, companies are receiving massive boosts in the stock market simply for announcing that they have decided to change focus and enter the cryptocurrency market.
On Friday 15 December, for instance, fintech firm LongFin saw a huge surge in interest after it announced a bitcoin-focused pivot. The company, which offers a “low-latency and high-frequency foreign exchange arbitrage platform” and only went public the previous Tuesday, announced that it had acquired Ziddu.com, “a Blockchain technology empowered solutions provider”.
The Monday after the acquisition was announced, the stock, which had been trading at $5 since it went public, peaked at $126, before dropping back down to $60. Through Ziddu, LongFin hopes to offer a cryptocurrency, Warehouse Coins, designed to let importers and exporters take out micro-loans backed by the goods they hold.
LongFin is by no means the first small-cap company to benefit from the cryptocurrency boom. Electrical supply firm Digital Power saw its stock spike by 750% in three weeks between November and December after announcing its plans to mine cryptocurrencies. In the 10 years previously, Digital Power had never traded above $3, but a surge of interest from investors has now pushed it to more than $5.
A Hong Kong technology trader sell bitcoin mining computers. Cryptocurrency ‘mining’ is power-intensive and involves the use of specialised computers to do very simple calculations rapidly. Photograph: Alex Hofford/EPA
Cryptocurrency “mining” involves the use of specialised computers to do very simple calculations rapidly. It is very power intensive, and the main reason for calculations that suggest that the energy usage of the bitcoin network is larger than that of the Republic of Ireland.
But LongFin and Digital Power were both at least in allied industries when they announced a focus on cryptocurrencies. Tobacco company Rich Cigars Inc had no obvious link at all to the sector when it announced in mid-December that it had “filed to change its name to ‘Intercontinental Technology, Inc.’”, reflecting its new focus.
The new management of the firm announced that it would enter into the business of cryptocurrency mining “by our ownership and operation of multiple cryptocurrency mining machines”, according to Richard Davis, Rich Cigars’ president. On the news, the company’s stock surged by 2,233%, from $0.03 to $0.70. Even after the surge died down, the stock remains up by almost 1,000%, trading at $0.28 at time of press.
The companies are benefitting from a surge in interest in cryptocurrencies, matched by the difficulty in investing directly in the sector, particularly for regulated financial entities. In December, the US SEC warned “extreme caution”over cryptocurrency investments, noting that they offered “substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation”.
Jay Clayton, the chair of the SEC, highlighted the fact that many cryptocurrency investments were flouting the law by not registering as securities with the commission.
“Replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through a blockchain entry on a distributed ledger may change the form of the transaction, but it does not change the substance,” he said.