Fintech microcap surges 2,600% after touting crypto link

By Jeremy Herron and Camila Russo

That’s how much the value of LongFin Corp. surged to after the microcap’s stock rocketed by as much as 2,600 per cent since debuting Wednesday. Most of the gains came since Friday, when the company issued a press release saying it bough Ziddu.com, “a blockchain-empowered global micro-lending solutions provider” that transacts only in cryptocurrencies.

LongFin joins a growing list of little-known companies that have seen their values soar after simply announcing plans to join the digital currency craze that’s pushed the value of bitcoin past $300 billion. The microcap rallies are reminiscent of the height of the dot.com bubble, when virtually any company that put tech in its name found favor on the public markets.

For LongFin’s Chief Executive Officer Venkat Meenvalli, the rally may be even sweeter. LongFin bought Ziddu.com from its affiliate Meridian Enterprises Pte. for 2.5 million restricted Class A shares. Meridian Enterprises is 95 per cent owned by Meenvalli, LongFin said in a regulatory filing Dec. 11.

It’s not the first time LongFin executives have overseen transactions where they are both the seller and the buyer. Stampede Tradex Pte. Ltd., a subsidiary of Stampede Capital, was sold to Longfin earlier this year.

The stock’s ride on Monday turned comical around 11:15 a.m., when the first of more than a dozen trading halts hit with the gain at almost 100 per cent. It lasted the stipulated five minutes before trading resumed, only to stop again three minutes later. It then started an on-for-one, off-for-five-minute cadence that persisted until noon, when trading ceased for 50 minutes. By that time, the surge had reached 548 per cent to $142.82.

The rally is overdone even to LongFin’s Meenvalli.

“It’s crazy, frenzied speculation on the cryptocurrency announcement, which we never expected,” Meenvalli said in a telephone interview Monday. “The fundamentals will slowly show, but this is crazy trading and has nothing to do with the company’s fundamentals.”

When the stock resumed shorty before 1 p.m., the bulge got cut by more than half, to $60. Trading halts resumed, this time for 10 minutes at a time, giving investors scant time to execute trades. The shares closed at $72.38 at 4 p.m., an increase of 229 per cent on the day.

Volumes also surged. After an average of 241,000 shares changed hands on the first two days, trading averaged almost 12 million in the past two days.

LongFin, which offers financing options for small businesses, has financial results going back to 2015, with revenue jumping to $40 million this year from $16 million last year, according to data on its website. The lender reported $7 million of income in the unaudited 2017 results, up from $4 million last year.

With the Ziddu.com acquisition, LongFin aims to base some of its services for importers and exporters on the blockchain. It wants to offer micro loans issued in Ziddu coins backed by goods in borrowers’ warehouses. Ziddu coins can be converted into bitcoin or ether, which can be converted into dollars, and used for working capital needs, according to the press release. The loans would be paid back in cryptocurrencies, and interest will vary from 12 per cent to 48 per cent, the statement said.

LongFin is one of a growing number of firms that are starting to delve into the cryptocurrency credit market. Some startups are starting to issue loans backed by the borrowers’ cryptocurrency holdings, while others help borrowers get financing from third parties.

It’s too early to tell whether this sector of the cryptocurrency world will catch on and what the consequences will be, but stock investors aren’t waiting to find out.

(With assistance by Luke Kawa)