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The big names in bitcoin get a lot of airtime: Former hedge-fund manager Mike Novogratz, antivirus millionaire John McAfee and the Winklevoss twins are the public faces of the cryptocurrency bubble.
Their bitcoin profits pale into insignificance compared with the riches bestowed on Michael Poutre, at least on paper. This week, the skyrocketing price of his unknown company made him a paper billionaire richer than any of them, and at Monday’s high of $3.9 billion, worth more than 1980s junk bond king Michael Milken or movie mogul Steven Spielberg, according to the Forbes 400 ranking.
Mr. Poutre holds one of the few stocks to do better than bitcoin this year, a company attempting to make money out of cryptocurrencies. His ownership of a fifth of Crypto Co., where he is CEO, briefly made him one of the richest people in America this week as its market value leapt to $12.6 billion, equal to the 381st biggest member of the S&P 500.
For a company that only started trading on the over-the-counter Pink Sheets market by a reverse takeover of a sports-bra designer this summer, and languished at 1 cent a share with no trading at all until September, there aren’t enough superlatives to express how bizarre this is.
It is yet another sign of the extraordinary popular delusion being created by bitcoin and the rush for everything crypto. Those who missed out on the 17-fold rise in bitcoin this year are piling into anything they can find that is associated with the cryptocurrency boom, even when the price can never possibly be justified by future profits. Just like the dot-com bubble, buyers don’t care because they aim to sell to a bigger fool.
Mr. Poutre’s newfound wealth is only on paper, and three-quarters of it vanished as the share price crumbled on Tuesday, before a partial rebound on Wednesday. He is realistic: In a private deal, a fund he controls sold $25,998 of stock last week at $7 a share, when the price quoted on the Pink Sheets was between $18 and $24.
In some ways the leap in Crypto Co.’s value is just an artifact of being a deeply illiquid stock. It doesn’t take much money to push up the price, and with 80% of the shares held by Mr. Poutre and his three co-founders, there has been little actual trading.
Yet, it is also indicative of the madness of the crowds trying to buy something—anything—bitcoin-related. “It certainly seems to be a reflection of the interest in this space,” Mr. Poutre told me. “One of the reasons we went public was to give the average investor access to this space in a way all can understand.”
He is trying to build a business to service cryptocurrencies, opening a trading floor last week, creating a crypto price index he likens to the Dow Jones Industrial Average or the S&P 500, and buying or partnering with other companies. The surging share price recently coincided with Mr. Poutre’s first deal, to buy a German cryptocurrency data business.
Mr. Poutre, a former stockbroker, was suspended for two years by the Financial Industry Regulatory Authority in 2010. He says he tried to have the record expunged after suing his former employer, but Finra refused to remove it (it added a note of his explanation). Since then, he has been involved in several small businesses, including two years as CEO of boutique designer Misahara Jewelry, and found his way into cryptocurrencies via a fund he jointly runs to invest in small companies.
Crypto Co. may be the most extreme example, but stocks with any connection to bitcoin have been skyrocketing. A tiny Nasdaq biotechnology-equipment company changed its name in October to Riot Blockchain Inc.,and its shares were up almost 10-fold by Tuesday’s high, before dropping back a bit. British microcap On-Line PLC said in late October that it would add “Blockchain” to its name, and its shares more than quadrupled in a day on the news. Australia’s DigitalX has also quadrupled since October, after raising money in bitcoin.
Bitcoin futures are part of the same trend. Investors think bitcoin is a magic money tree and want to find ways to buy it that don’t involve the hassle and risks of buying actual bitcoin from cryptocurrency exchanges with flaky service and unknown creditworthiness. The limited supply of anything that looks like a plausible listed alternative—or even an implausible alternative, in the case of Riot Blockchain—is meeting an insatiable demand, just as happened in the dot-com bubble.
There are two deep ironies in all this. The first is that the limited supply of bitcoin is hailed by its supporters as a way to avoid the magical thinking of central bank money-printing. The second is that bitcoin was created in 2009 to make small online transactions easy and remove the need to use financial intermediaries, but is so hard to use that it has created a whole new set of financial intermediaries.
Copyright The Wall Street Journal 2017