Bitcoin Stocks: It's the Name That Counts

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As the tech sector boomed during the late 1990s, shrewd companies quickly figured out how to send their share prices soaring. If they renamed their company to something that ended with ".com," investors would pay a higher price for its shares simply on the basis of its name.

Amazingly, it worked time and time again. In just one example, a company by the name of Computer Literacy Inc. changed its name to FatBrain.com in March 1999. On the day of the announcement, shares ended the session 36% higher than where they opened.

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Was Computer Literacy really worth 36% more as FatBrain.com? Of course not, but by simply changing its name, the online bookseller attracted a new cohort of investors who were conditioned to buy any company with ".com" in its corporate identity.

In 2001, Purdue University published a study about name changes in the dot-com era titled "A Rose.com by Any Other Name." The authors found companies that changed their name to include ".com" or "internet" during a 14-month period from 1998 to 1999 enjoyed abnormal returns of 74% during the 10 days surrounding their name change.

Don't be fooled, though. Companies enjoyed surging valuations from having the right name long before internet message boards and online SEC filings. When investors rushed to buy airline stocks following Charles Lindbergh's trans-Atlantic flight in 1927, many snapped up shares of Seaboard Air Line to profit on a coming revolution in flight. Seaboard Air Line had nothing to do with air travel. If anything, it was the opposite of what investors wanted: a low-tech passenger railroad that serviced the Southeastern United States.

BlockchainAirline.com

A good name is worth a lot. A whole industry exists just for naming consumer products. Lexicon Branding is perhaps the best at creating names, taking credit for billion-dollar superstars that include Dasani, Febreze, and Swiffer.

When it comes to naming a company for stock market gains, good names are easier to come by: Pick a name that resonates with a big trend, ideally in a corner of the market where people think about stocks as "trades" or "trends" rather than "investments."

In 2017, nothing has breathed new life into a company that would otherwise be left for dead quite like the words "bitcoin" and "blockchain." The market craves bitcoin stocks of any kind or quality. Legitimacy hardly matters; just give it a good name and watch it soar.

On Oct. 4, a biotech company by the name of Bioptix validated the practice of adopting bitcoin-related names when it announced a complete 180-degree turn in its business model. Rather than continue down a long path of losing money on medical products, Bioptix renamed itself Riot Blockchain (NASDAQ: RIOT) and became a "strategic investor and operator in the blockchain ecosystem with a particular focus on the Bitcoin and Ethereum blockchains."

On the day of the announcement, shares of Riot Blockchain opened at a price nearly 39% higher than where they closed the day before. And while we can debate whether it is actually a good "strategic investor and operator" -- shareholders sent the stock up on news it issued $12 million of preferred stock to buy cryptocurrency mining equipment worth no more than $2.1 million -- Riot Blockchain is very good at getting speculators to pay higher prices for its own shares. Less than three months after its name change, shares are up more than 400%.

Coming full circle

Good ideas attract imitators. Following in Riot's footsteps, a company by the name of Omni Global Technologies changed its name to Blockchain Industries, Inc. (NASDAQOTH: OMGT) on Nov. 13. The company recently wrote in its quarterly SEC filing that its "primary near-term corporate objective is to build a diversified financial technology company focused on blockchain."

Shares of Blockchain Industries, which infrequently traded hands for less than $0.05 each prior to the name change now trade for $21. Disclosures in SEC filings reveal that it raised a modest amount of cash, roughly $765,000, by selling stock in private placements at prices ranging from $0.20 to $2.50 per share. Meanwhile, traders are flipping its shares back and forth at prices eight times higher than the highest price at which shares were sold privately in negotiated transactions.

But the best part of Blockchain Industries' story isn't the fact it had exactly $0 of assets on Oct. 31, nor that it surged 42,000% in less than three months after changing its name. The best part is the story told in its brief company history detailed in its SEC filings.

In 1995, long before it assumed the name Blockchain Industries, the company operated as Interactive Processing, Inc. Its business plan involved selling consumer electronics through home-shopping networks, retail stores, catalog companies, and online through its website, remotecontrols.com.

Interactive Processing, Inc.'s share price never took flight in the dot-com boom. In March 1999, it did the only logical thing, reinventing itself as a trade show software company. It also adopted a new name fit for the times. In one last attempt to boost its share price a year before the tech bubble burst, the boring-sounding company known as Interactive Processing became Worldtradeshow.com, Inc.

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