I remember the old days when Overstock.com Inc (NASDAQ:OSTK) was exactly that; a place where customers can get discounts on overstocked items. It’s a brilliant idea, and even more brilliant considering the fiercely competitive retail environment. Inevitably, procurement managers will make mistakes, creating excess inventory. OSTK solves that problem.
Now, Overstock.com stock is the problem. Rather than focus on executing their primary business the right way, management has, according to my colleague Will Ashworth, turned to becoming a blockchain incubator. Ashworth asserts that the OSTK team is using the bitcoin bonanza as a distraction because their core business is unprofitable.
Ordinarily, you don’t want to make assumptions about a company’s direction, but in this case, Ashworth is completely correct. Our own Tom Taulli reported that Overstock CEO Patrick Byrne is willing to sell the company’s e-commerce business to keep the blockchain venture going.
Naturally, such bullishness has boosted OSTK stock, but what exactly is this venture?
I’m not entirely sure. Overstock.com has a subsidiary called tZERO. According to the subsidiary’s website, tZERO is a platform that “integrates cryptographically secure distributed ledgers with existing market processes to reduce settlement time and costs, increase transparency, efficiency and auditability.”
Okay. How they intend to pull such an ambitious goal is even more obscure. “Our modular, adaptable platform integrates with trade participants to create a real-time, authenticated, immutable ledger,” they say.
The latest news item is that this blockchain project is partnering with Polymath to help roll out a tZERO token. Great! Just what we need: yet another initial coin offering (ICO) purporting a solution to a problem solved long ago.
If you haven’t jumped ship from OSTK stock, I’d seriously consider doing so now. Overstock.com has turned into Overcoined.com.
OSTK Stock Benefits and Suffers from Blockchain Confusion
Byrne’s defenders claim that he is a visionary in the blockchain space. A slow visionary, perhaps. Overstock.com was the first major retailer to adopt bitcoin, I’ll give him that. But if he was a true visionary, I’d expect him to blockchain faster. Like Ashworth said, the move is simply a distraction to boost OSTK stock.
The biggest concern I have, though, is blockchain confusion.
Because of the dramatic rise of bitcoin and alternative cryptocurrencies, people developed an unnatural fetish for cryptos’ underlining technology. Indeed, most interested parties can be separated into two categories: those who dive into the granularity, and those who have no specific understanding at all.
Both miss the forest for the trees; hence, the opportunity and risk for Overstock.com stock.
At its core, a blockchain is simply a database. An extremely powerful, innovative database to be sure, but a database nonetheless. The blockchain has more in common with Microsoft Corporation’s (NASDAQ:MSFT) Excel than it does with your fantasies about it.
What makes this blockchain database so special is that its data verification is achieved via consensus. With cryptocurrency mining, multiple “verifiers,” or miners, compete to verify the data, which requires computer-intensive algorithms. Whoever wins the verification race receives a unit of cryptocurrency as a reward. In theory, this mining process is decentralized — no one entity controls it.
In practice, it’s a different story. Early advocates dominate bitcoin mining and its subsequent supply. The ongoing “crypto wars” are robust debates on how to perfect decentralization. Thus, OSTK stock is a gamble that Byrne has the answer.
But few understand this dynamic. The general public looks at the blockchain, and anything associated with it, as a lottery ticket. Once the public grows knowledgeable, OSTK stock might face the music.
Overstock.com Is a Senseless, Redundant Gamble
One of the things I hate about ICOs is that invariably, the token’s development team spends zero money in marketing. Overstock’s tZERO platform claims it will “integrate” with me. What on earth does that mean? If a company can’t explain in human terms what their business is about, run!
Then again, I think Overstock.com’s obfuscation is deliberate. If people knew what tZERO was on about, they’d see that OSTK stock has devolved into a senseless, redundant gamble.
Do you want a faster bitcoin? Go buy bitcoin cash. Do you want cheaper transaction fees? Consider litecoin. How about an institutionally-backed crypto? Ripple is your answer.
Overstock.com stock as a retail play is over. Management has more or less given up on it. Moving forward, it’s blockchain all the way. But if that’s the case, why not just go direct instead of dealing with the middleman?
As of this writing, Josh Enomoto is long all the cryptocurrencies mentioned in this article.