Blockchain stocks are hot. In fact, they are too hot, and that has a risk associated to it.
Case in point: A little-known micro-cap stock called Long Island Iced Tea Corp. announced on Thursday December 21st that it changes its name into ‘Long Blockchain Corp.’ The same day its stock price rose more than 200 percent at the open of trading, said CNBC the very same day.
There was a lot of fuzz around this stock in the days after. Some financial media and analysts were lyric, some others were cautious, in any case everyone was amazed about blockchain stocks.
Many investors got hit by FOMO which is the Fear Of Missing Out the rally. That is very dangerous because emotions hit investors which is a risk in and on itself.
Just 2 weeks later, last Friday, the whole story became clear. The company Long Island Iced Tea Corp. confirmed that it met the conditions of the SEC to stay listed on the Nasdaq. In October Long Island Iced Tea Corp. got a warning from the SEC, and, because of the fact it was performing very bad it had to improve and report back on its progress on January 5th (last Friday). One of the requirements appeared to be that the company had to stay above a threshold of a $35M market cap.
With the name change Long Island Iced Tea Corp.’s market cap soared to almost $70 million, and has stayed above the $35 million threshold since then, said Bloomberg. And here it becomes interesting as in the same Friday announcement it became clear that:
“The company said it was buying 1,000 bitcoin-mining machines and offering as many as 1.6 million shares. The purchase may not go through if Long Blockchain doesn’t get enough funding.”
“Our management has relatively little experience in the blockchain technology industry,” the company said in the Friday filing. It also warned investors that while its exposure to bitcoin could boost the stock in the near term, this may “change over time.”
“The company’s Chief Executive Officer Philip Thomas said last month that the decision to pivot to blockchain technology was “a once-in-a-generation opportunity.”
There you have it.
Now this is exactly why we have developed a scoring methodology to assess any blockchain company, whether it is a ‘new kid on the blockchain’ or an existing blockchain company. Long Island Iced Tea Corp. does not deserve a score of more than 50 on 100 which categorizes in our “stocks to avoid” section.
More examples of blockchain stocks that appeared to be not worth investing in include The Crypto Company and UBI Blockchain Internet. Both companies have been halted by the SEC according to a recent CNBC article released yesterday.
Uncoincidentally, both stocks were in our “stocks to avoid” section since two weeks ago which suggests our scoring model works very well.
Investors have two important objectives. First, they have to find rising trends, and invest in bull markets. Second, even more importantly, they have to avoid losses. Avoiding bad stocks has a great value, and this is exactly what we aim to deliver with our research.