On one day in December 2017, a small US company called Long Island Iced Tea Corp saw its shares treble. What had the drinks maker done?
It had announced it was going to move into the “exploration of and investment in opportunities that leverage the benefits of blockchain technology,” and change its name to Long Blockchain Corp. Since then, the stock has collapsed and delisted from NASDAQ, and now trades over the counter.
It’s like the dot com bubble of the turn of the century, when doing stuff on the internet was going to be the new big thing. But nobody really knew how yet, and internet companies with no apparent strategies for making profits saw their shares soaring. Week in, week out, all a startup had to do was talk about the “new online paradigm,” or “new economy,” or some such guff, and its shares would skyrocket.
Looking back further to the infamous South Seas bubble, the phrase ‘South Seas’ had the same effect on get-rich-quick investors that internet did nearly 20 years ago. It’s now the turn of ‘blockchain’.
At the peak of the mania, there were almost daily launches of new ventures to those far off lands, and investors piled into them, regardless of any realistic prospectus — with perhaps the most famous advertising itself as “a company for carrying out an undertaking of great advantage, but nobody to know what it is.”
And it wasn’t just the dumb and gullible who got caught — even a man as smart as Isaac Newton lost a packet in South Sea stock.
Today’s equivalent is the stream of Initial Coin Offerings, or ICOs, the route by which new cryptocurrencies enter the market. According to various sources, the world has already had more than 3,000 individual blockchain ICOs. And there are hundreds lined up, covering all sorts of things from AI and high-frequency trading, monetising video gaming, decentralising funding, decentralising B2B… bleurgh, it’s making my head turn to jelly.
I think blockchain technology is very much comparable to both of those previous bubbles. The South Seas mania actually was the start of something good — international trade (by way of empires first, sadly), without which we’d be enormously poorer today. It’s just that nobody at the time had the knowledge or the means to do it properly.
And the dot com boom did presage the enormous rise in online business, only investors in those early days were swamped with startups of which very few were going to survive, never mind prosper.
Blockchain is a genuinely exciting technology, and some researchers and businesses are dipping their toes into its real long-term potential. But it’s far more than making up pretend money, unbacked by any real assets, and hoping it will just be worth something. I’m sure there will be some long-term successful cryptocurrencies, and Facebook‘s Libra is, I think, showing the way they might turn out — actually backed by assets, and designed to be stable.
We don’t know yet
By the time blockchain reaches maturity, I reckon the corpses of the current get-rich-quick schemes will have turned to dust. And, as in cases past, nobody yet knows what shape it will take. Right now, I’m watching for the launch of Tulipcoin — then I’ll know for sure the madness has peaked.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.