Why Eastman Kodak Company Stock Surged on Monday

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What's happening?

Shares of Eastman Kodak Company (NYSE: KODK) are surging by 16% as of 3:45 p.m. EST as speculators turn to the stock as the new blockchain trading vehicle of choice. Investors are likely buying in ahead of the planned launch of its cryptocurrency, KODAKCoin, which will take place later this month.

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So what

Eastman Kodak is partnering with WENN Digital to create a digital currency known as KODAKCoin, which will effectively act as a currency on its KODAKOne platform. Think of KODAKOne as something of a replica of Shutterstock, a marketplace for photo buyers and photographers to meet to buy and sell the rights to use certain images.

KODAKOne's purported advantage over existing platforms is that it will use blockchain technology to help photographers manage licenses to their content. Every transaction and license will be stored on the KODAKOne blockchain, and the data can be used to help protect photographers' licenses by crawling the internet for unauthorized use.

Behind the scenes, plans to launch the KODAKCoin digital currency are falling into place. Kodak's website for the coin reveals that its initial coin offering (ICO) will take place on January 31. A subsidiary of Overstock.com known as tZERO is acting as advisor for the launch, after which the KODAKCoin will be available for trading on the tZERO platform.

Now what

At this point, it's hard to say exactly what KODAKOne and KODAKCoin mean for Eastman Kodak as an operating business. After all, the value of the KODAKCoin really depends on the success of the KODAKOne platform, and whether or not photographers and content buyers will prefer to transact in KODAKCoin rather than...say, U.S. dollars on other platforms. Creating two-sided networks is notoriously difficult, as sellers don't want to join platforms where there are few buyers, and buyers have little interest in joining platforms where there are few sellers.

At this point, it's becoming clear that Eastman Kodak's legacy business of selling printers, packaging, and consumer products like film is likely in terminal decline. Excluding non-cash goodwill impairment charges, Kodak lost about $2 million before taxes in the most recent quarter, and it earned only $19 million on the same basis during the first nine months of 2017.

Shares of Eastman Kodak are inherently volatile, as they have become a vehicle for speculation on all things related to cryptocurrencies and blockchain. It doesn't help that the stock is heavily shorted, since short-sellers can only reduce their bearish bets against the company by purchasing stock to cover their short sales, driving prices higher on days like today.

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Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool recommends Shutterstock. The Motley Fool has a disclosure policy.

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