The past year has seen bitcoin become a dirty word in certain quarters but now the US regulator and the Shenzen Stock Exchange have separately moved to dampen hype associated with blockchain.
JP Morgan chief executive Jamie Dimon, pictured left, famously called bitcoin “a fraud” last year, while a couple of weeks ago International Investment reported how Bank of America Merrill Lynch had become the latest global financial player that had banned bitcoin for investment by employees and traders.
However, up until now, critics have reserved their ire for bitcoin and other digital currencies. and have generally been careful to distinguish between them and blockchain, the technology behind the distributed ledger that records payments used by such digital currencies.
Blockchain is being explored especially as an interbank clearing and settlement system that is likely to mean delays in transfers between banks in different jurisdictions is likely to be consigned to history.
Until now, blockchain has been relatively uncontroversial, with six leading banks – Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, Mitsubishi UFJ and State Street – collaborating to create a “utility settlement” coin pioneered by Swiss bank UBS to streamline financial transactions.
And in December, International Investment reported that the Australian Stock Exchange had signalled its intent to adopt blockchain technology to underpin its equities settlement and clearance system.
Now, though, the Securities and Exchange Commission (SEC) and the Shenzen Stock Exchange have signalled that they will move on companies that mention blockchain in sales and marketing collateral in order to hype their offer or seek to dazzle with mention of the technology.
Protecting ‘mom-and-pop investors’
The Wall Street Journal today reports that two exchange-traded funds (ETFs) launching today had to erase the word “blockchain” from their name after a last-minute intervention by the Securities and Exchange Commission.
The SEC insisted that the word “blockchain” be removed from the funds’ names thanks to a “speculative frenzy” for anything associated with bitcoin or blockchain, the technology behind the cryptocurrency.
“You can understand the SEC’s point of view,” said Eric Ervin, chief executive officer of Reality Shares, one of the firms that had to change the name of its ETF.
“There are a lot of retail mom-and-pop investors buying anything blockchain without really understanding what’s in it,” he told the newspaper.
“The SEC’s whole concern is protecting investors,” Christian Magoon, CEO of Amplify said.
“We’ve seen this phenomenon that has pushed up valuations of companies that put blockchain in their name or announce a blockchain ETFs.”
Famously, the Long Island Iced Tea Corporation saw its share price surge by more than 500% on changing its name to Long Blochchain Corporation.
And Eastman Kodak’s stock price more than doubled a little over a week ago when the company announced that it was looking to launch a digital currency.
China gets touch on blockchain ‘hype’
Meanwhile, the Shenzhen Stock Exchange last night announced on its social media feed last night that it would punish any company that buys blockchain-related stocks, or makes untrue claims that it is embracing blockchain, to hype its share price.
“We have interviewed 17 companies about their business models and investments in developing blockchain-related operations,” the stock exchange said.
It would, it said, “make enquiries on the progress of companies using blockchain technologies in their business operations, and how the technology could boost their revenues”.
And it warned that it would “implement administrative punishment on any companies which continue to use the concept of blockchain to create hype in their [own] share price, or misguide investors”.
“Those who have breached the law by doing so, or those in future, will be dealt with by the China Securities Regulatory Commission (CSRC),” it concluded.