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Your best response when a company shouts crypto? Run
[TAIPEI] We all know the drill.
A US-listed company announces plans to move into cryptocurrency. Its shares surge. And then they fall.
Some speculators make a quick buck, then cash out. Others are left holding the baby, having bought in at the peak.
But there's another thread running through these firms that should tell you a thing or two. They're all struggling businesses with clear strategic or financial challenges.
Long Island Iced Tea is the most notable of the recent crypto-opportunists. The company hasn't posted a profit in at least 11 quarters and, as Bloomberg's Lily Katz uncovered, was facing delisting unless it brought its market cap up above US$35 million. Chronically unprofitable and ever-shrinking Chinese social media company Renren figured an ICO would brighten its future, and obliging traders agreed.
Eastman Kodak has been drifting in and out of profitability for the past decade (mostly out), with its shares following suit. Seven years after the death of Kodachrome, the company is now proffering KodakCoin, which will allow: "...participating photographers to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and sell their work confidently on a secure blockchain platform."
Finally, there's Japanese instant messaging group Line. It's not quite the basket case of the aforementioned examples, but it's heading that way. User growth is stagnant and revenue from its two legacy units - communication and content - has fallen. So we shouldn't be surprised to hear that it's also considering dipping a toe into the crypto space, as Bloomberg's Yuji Nakamura reported. Line's Tokyo-traded shares jumped as much as 13 per cent on Tuesday before paring gains on Wednesday.
In the cases of Kodak and Line, blockchain actually makes a lot of sense. The technology is well-suited for IP(intellectual property) management, with the photography industry ripe for a new approach to keeping track of and monetising content. In social media and chat apps, building some kind of cryptocurrency-transfer mechanism would be an extension of the existing trend towards integrating payments with instant messaging.
But just because it makes sense, doesn't mean these companies can do it. The crypto-universe is littered with the carcasses of failed ICOs, only some of which were downright scams. This high fatality rate can be put down to the fact that blockchain is hard, and solid execution is crucial.
Line's share close on Tuesday +10%. Renren already had its ICO pulled by Chinese regulators and at least Long Island admits that it has "relatively little experience in the blockchain technology industry".
For Kodak and Line, though, the risk is that they and their investors believe they can pull it off. Given the companies' recent history, there's good cause for doubt.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.