C.J. Lawrence Weekly – Want Blockchain Exposure? Buy a Basket “OF MAGIC”
Until last week, Kodak was an imaging company struggling to manage the transition from film and hardware to digital and software. The 130-year-old company, which emerged from bankruptcy in 2012, had lost 80+% of its market value since re-emerging as a public company. But on Tuesday, Kodak announced that it was launching a cryptocurrency called Kodak Coin and would be launching an image rights management platform, that leverages blockchain technology, called Kodak One. The stock soared on the announcement, finishing up almost 200% in a week. A similar halo was bestowed on drinks company Long Island Iced Tea Company, which changed its name to Long Blockchain Corp. only to see its stock quadruple on the announcement. Likewise, the price performance of new digital coin and token issues has been measured in multiples, rather than percentage point moves. For those who invested through the dot com boom and bust period in the late 1990’s, these stories sound eerily similar to the concept (pre-revenue) IPOs that launched in the late 1990’s in response to the market’s insatiable appetite for anything resembling an “internet company.”
Cryptocurrency and blockchain debates have dominated the business news cycle over the past few weeks. Recent moves by South Korea and China to limit cryptocurrency trading fueled volatility on exchanges already besieged by wide price swings. In an on-air interview with New York University’s expert on corporate valuations, Prof. Aswath Damodoran, highlighted the point that cryptocurrencies are currently being priced, not valued, and that the full faith and credit behind cryptocurrencies is the software code that defines them, and not any one entity, agency, or balance sheet. He also introduced the concept of crypto-commodities, versus cryptocurrencies, which some advocates consider more akin to gold than the Swiss Franc or Russian Ruble. No doubt, these instruments have their supporters. But mainstream adoption of cryptocurrencies and crypto- commodities may be evolutionary, not revolutionary. Central bankers, government officials, consumers, and consumer protection agencies world-wide, all with their own agendas, will need to agree on global protocols and processes, before cryptocurrencies become mainstream. Unlike dot com companies, which opened access to new services consumers previously did not have, cryptocurrencies seek to replace existing processes and means of exchange, that unquestionably have flaws, but which few would claim inhibit consumers’ ability to transact. Thus, for all the benefits of cryptocurrencies, the lack of a pressing unmet need may slow their adoption. Meanwhile, blockchain technology, the infrastructure behind cryptocurrencies, looks to have broad application, and may warrant more immediate investor attention.
Blockchain is a shared public ledger which tracks transactions and ensures the record of those transactions remains transparent. There are broad applications for the technology, and various initiatives are currently underway exploring the benefits of blockchain ledgers in the financial services, e-commerce, food safety, digital media, pharmaceuticals, cybersecurity, and transportation industries, among others. Leading the charge in these areas are several of the world’s most successful technology companies. Microsoft, IBM, Oracle, Alphabet (Google), and Accenture all have major initiatives underway aimed at integrating blockchain technology into current business processes. Facebook CEO, Mark Zuckerberg, has stated that blockchain and crypto currency will be one of his top personal priorities in 2018. In our view, these companies, and a few other technology leaders, possess the size, scale, engineering prowess, and balance sheets to bring blockchain technology from white board to implementation. There will no doubt be “moon shot” start-ups and disruptors that make their founders and owners rich. But for investors seeking a lower risk approach to participation in the new paradigm of blockchain technology, we suggest establishing a basket “OF MAGIC” (Oracle, Facebook, Microsoft, Accenture, Google (Alphabet), IBM Corp., and Cisco) which delivers broad exposure to this revolutionary technology.
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