A basket of publicly traded small-cap companies are scrambling to join the blockchain craze, setting aside traditional business operations and reorganizing to take advantage of emerging opportunities in this red-hot sector. Market players have bought these odd transformations aggressively, triggering vertical rally spikes and deep pullbacks, making it likely that other low-priced laggards will follow suit in coming months.
This eye-popping phenomenon signals opportunity and risk for capital seeking exposure to blockchain's volatile shift into the mainstream. Realistically, most of these companies will eventually fail and trap complacent shareholders in significant losses, but a select few may carve powerful uptrends that reach multi-year or all-time highs. Well-honed risk management skills will be needed to uncover the few promising plays, which should still be dumped like hot potatoes when this classic market bubble finally pops. (To learn more, see: What Is Blockchain and Why Should I Care?)
Marathon Patent Group, Inc. (MARA) came public at $12 in July 2013 and rallied into the upper $30s in the fourth quarter of 2014. It then entered a steep decline, finding support near $6.00 in November 2015 and testing that level for six months, ahead of an oversold bounce that stalled just above $12 in August 2016. The stock broke range support in March 2017 and spiraled into June's all-time low at 50 cents.
A bounce ended at $2.21 a few weeks later, yielding three failed tests at that level, followed by a high-volume November breakout in reaction to a one-for-four reverse split and acquisition of a digital asset company. The rally spike peaked at $10.03 a few days later, with price action into January 2018 carving a trading range that is testing support at the .618 Fibonacci sell-off retracement level near $4.00. A breakdown into the Nov. 24 gap under $3.00 could offer a lower-risk entry in this volatile scenario, ahead of a test at the rally high. (See also: Top 3 Books to Learn About Blockchain.)
First Bitcoin Capital Corp. (BITCF) trades on the Nasdaq OTC market, also known as pink sheets. The stock rallied to a reverse split-adjusted $1,600 in 2003 and dropped under 10 cents in 2005, holding like glue to that depressed level into March 2017, when the stock entered an uptrend that escalated into August's high at $3.15. It has been stuck within the May into August trading range since that time, holding support at the .786 Fibonacci retracement level near 80 cents.
A rally above the .382 retracement level at $2.00 could stoke the speculative fires, generating a test at the summer high and possible breakout that eventually reaches double digits. Conversely, a decline through support at 80 cents will raise the odds that the uptrend has come to an end, yielding another period of dreadful sub-dollar performance. The late December bounce now favors a bullish outcome. (For more, see: SEC Suspends Trading for First Bitcoin Capital Shares.)
Long Blockchain Corp. (LTEA) raised eyebrows when it changed the corporate name from Long Island Iced Tea Corp. in December, but it still soared to a two-year high in pre-market action following the news. This stock began public life near $60 in 2010, drifted down to 60 cents in 2011 and bounced to $15 in 2015. It sold off to a two-year low at $1.70 just a week before the transformation news, which triggered a rally spike to $9.49 during the regular session.
A Fibonacci grid from deep low to vertical peak organizes volatile price action, with selling pressure after the one-day-wonder rally cutting through the .786 retracement last week. It recovered quickly off that level and tested resistance at the .386 retracement, which triggered another reversal. This price action suggests that a rally above $6.50 that holds into the closing bell will attract momentum buying interest that favors a breakout into the double digits. (See also: Long Island Iced Tea Soars 280% After Renaming Itself Long Blockchain.)
The Bottom Line
Low-priced laggards are jumping on the blockchain bandwagon, changing corporate identities in hopes of gaining traction that will benefit company officers with large holdings. Traders and market timers can profit from this phenomenon, but aggressive risk management will be needed to avoid steep losses. (For additional reading, check out: 4 New Platforms Combining VR and Blockchain.)
<Disclosure: Low-priced and over-the-counter securities can pose significant market risks. The author held no positions in the aforementioned securities at the time of publication.>