What happened

Shares of Longfin Corp. (OTC:LFIN) cratered on Thursday, continuing a decline set in motion by its removal from the Russell 2000 index on March 27. The company went public in December at $5 per share, then rocketed to over $140 per share after the company announced the acquisition of a blockchain company. The stock was down about 47% at 3:45 p.m. EDT on Thursday, bringing the price below $18 per share.

So what

Longfin was removed from the Russell index soon after being added, with the stock failing to meet the minimum 5% free float requirement. While this was the only real piece of news, Longfin's outrageous valuation and the ongoing decline in cryptocurrency prices are likely playing a role in the stock's collapse.

A coin with a B on the face, against a background of a chart.

Image source: Getty Images.

Longfin generated just $28.1 million of revenue on a pro forma basis between Feb. 1 and June 30 last year, and it only expects its blockchain acquisition to account for 5% to 10% of revenue this year. The market capitalization, even after Thursday's plunge, is over $1 billion. That's down from a peak of $7 billion.

The removal from the Russell index may have been the catalyst for this decline, but it wasn't the root cause.

Now what

Longfin is a clear-cut bubble stock with a nonsensical valuation. Even the CEO, speaking to CNBC last year, said that the market cap wasn't justified. Those who didn't listen are paying the price today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.