- Overstock was one of the first e-commerce platforms to accept Bitcoin payments.
- The company is now developing a platform for distribution of crypto-securities.
- Overtsock could gain the first mover advantage in what is deemed to be the 'next big thing'.
Overstock (NASDAQ:OSTK), an online retailer based in Salt Lake City, is preparing to enter the novel and very promising sector of crypto-securities, where it will enjoy first mover advantages.
The company, which went public in 2002 at an IPO price of $13 and now trades at $21, is developing a software platform to distribute corporate stock online instead of using traditional stock exchanges like the NYSE or Nasdaq.
The Overstock platform, dubbed “Medici,” will use the “blockchain” technology that powers Bitcoin.
How Bitcoin Is Finding Acceptance
Introduced in 2009 as an alternative “Internet currency” based on public-key cryptography, Bitcoin became an instant hit in the community of hardcore libertarians and crypto-enthusiasts. Today, Bitcoin is rapidly shedding its early image of underground currency used for seedy or illegal activities, and becoming a darling of Wall Street.
A few days ago, the NYSE launched its Bitcoin price index NYXBT in what can be considered as a stamp of approval of the emerging crypto-currency by the financial establishment. After stating in a recent report that Bitcoin could shape the future of finance, Goldman Sachs participated as lead investor in a $50 million funding round for startup “Bitcoin bank” Circle. These are but a few examples of the rising profile of Bitcoin, and new Bitcoin-related headlines appear daily in the financial press.
Bitcoin transactions are validated by software running on the computers of millions of Bitcoin users all over the world, which form a decentralized peer-to-peer (P2P) network without a central authority. As a result, Bitcoin payments are processed in minutes with very low transaction costs and permanently recorded in a tamper-proof public ledger dubbed “the blockchain.” These three advantages – faster, cheaper and more traceable payments – justify the interest of financial operators, governments and central banks in the new crypto-currency.
But payments are not the only feature of blockchain systems. A blockchain is a decentralized, distributed and cryptographically secured database, which can be used to store information. In particular, it can record ownership of equity. That’s what Overstock’s Medici crypto-stock exchange will do.
Overstock's Crypto-equity Amibitions
According to CEO Patrick Byrne, Overstock is building the platform that will let companies issue crypto-equity, and finding ways to overcome the many legal obstacles. “There is an opportunity to recreate the financial world as we know it in the parallel universe that is the blockchain,” Byrne said in a recent interview. “We are writing rules for this whole new universe. “
Last fall Overstock purchased a 25 percent stake in stock brokerage PRO Securities. The brokerage then amended its charter to include trades in digital securities overseen by technology related to the blockchain. A few weeks ago, Overstock filed a prospectus with the Securities and Exchange Commission (SEC) indicating that it may issue up to $500 million in stock or other securities through an alternative trading system built upon the blockchain technology. According to Byrne, Overstock has added blockchain-related technology to the electronic trading system operated by PRO Securities and is ready to demonstrate this technology to regulators.
Overstock’s crypto-stock exchange is likely to win regulatory approval, because Nasdaq itself is planning similar developments. “Utilizing the blockchain is a natural digital evolution for managing physical securities,” said Nasdaq CEO Bob Greifeld, and on May 11 Nasdaq announced that it would launch a pilot project, based on blockchain technologies, to expand and enhance the equity management capabilities offered by its Nasdaq Private Market platform.
Why You Should Consider Overstock As An Investment Option
It appears that Overstock, which was one of the first major online retailers to accept Bitcoin payments on its website, is determined to bet big on the future of blockchain technologies. Digital crypto-currencies are considered as the “next big thing” in fintech by a growing number of analysts, and Overstock is positioning as first-to-market and leader in alternative blockchain-based stock exchanges.
This is unlikely to have any short-term impact on the company or the stock. However, Overstock is participating as a key developer in the creation of a new sector, and as it happens in these cases the benefits are downstream, a few years down the line.
Investors bullish on the future of crypto-currencies should consider Overstock as a buy-and-hold.
You can check Amigobulls' Overstock stock analysis video for a quick roundup of key fundamentals.