From Jeff Clark, Editor, Delta Report:
Cryptocurrency stocks just had their “K-Tel” moment.
Those of us who are old enough to know what a record player looks like, or who can reminisce about playing our favorite cassette tape on the car stereo system, remember K-Tel.
The company is best known for its compilation music albums, such as The Best of Disco, the #1 Hits series, and Anne Murray’s Greatest Hits.
Those of us involved in the stock market during the dot-com bubble remember K-Tel, too. Though just a bit differently…
In mid-April 1998, during the dot-com bubble, K-Tel was on the ropes. Its sales were declining. The company was losing money. It barely made enough to pay the interest charges on its growing mountain of debt. Its stock price was languishing.
So, K-Tel’s management did the only thing it could think of to turn its fortune around… It changed its name to K-Tel.com.
The mere announcement that K-Tel was expanding its business to the internet sent the stock screaming higher. K-Tel rallied from $9 per share to $21 in just one day. It hit $34 per share one week later.
K-Tel wasn’t the only company that saw its stock rise simply by connecting it to the internet community. But it was the most flagrant, upfront, obvious manipulation we’d seen up to that point.
Internet stocks were hot. And K-Tel was going to capitalize on it.
The business hadn’t changed. The balance sheet hadn’t improved. K-Tel was still as close to bankruptcy as it had been the day before. But the stationary now said “K-Tel.com”… and that was good enough for a nearly 300% increase in the stock price.
Lots of traders I knew rushed to buy the stock because everything with “.com” in its name was on fire. They understood the stupidity. They agreed it was illogical. But, as they said at the time, the stock was running higher. It was either get on board despite the absurdity or stand aside and watch everybody else profit off the move.
Less than one year later, K-Tel shares were trading for pennies.
The dot-com bubble lasted another two years after K-Tel announced its name change. But when I think about the craziness of that time, about the insanity of valuing companies based on “page views” or “eyeballs”… about how so many investors knew they were being foolish with their money but they just couldn’t sit by while everything kept going higher… about all the money that was wiped out when the bubble popped… I think about K-Tel.
Traders will do well to remember the story of K-Tel as the cryptocurrency bubble inflates. Beware of stocks that soar in price on nothing but the promise of maybe, someday, perhaps doing something involving cryptocurrencies.
K-Tel didn’t do anything at all to change the value of its business. Management wanted a higher stock price, so it did what it had seen other companies do to pop their share prices higher. It simply changed its name.
And investors came running… for a while, anyway. Then they lost everything.
Now, consider the current story of Bioptix Inc. – which used to be a biopharmaceutical/medical device company.
Bioptix had fewer than six million shares outstanding – 40% of which were owned by company insiders. The stock hadn’t done anything all year. It started 2017 at about $3 per share – which gave it a total market capitalization of about $18 million. And it stayed at about $3 per share up until October.
That’s when Bioptix changed its name to Riot Blockchain (RIOT). And just look at what happened to the stock…
RIOT hit a high of $24 per share last Friday. That’s an eightfold increase in the market value of the company based solely on the name change.
The term “blockchain” describes the technology behind transactions in the cryptocurrency market. Companies involved in that space have been HOT. So, by merely changing its name to something that included the term “blockchain,” Bioptix manufactured over $110 million in market cap.
How much would you like to bet the insiders own something less than 40% of the outstanding shares now?
This is the sort of stuff that happens as bubbles inflate. It doesn’t mark the top of the bubble. Like I said, the dot-com mania went on for another two years after the K-Tel scam. But it is a warning sign.
So, if you’re going to dance to the classic hits of the late 1990s, just be sure to get off the dance floor before the music stops playing.
Best regards and good trading,
From Jeff Clark, Editor, Delta Report: