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Overstock’s Bitcoin Play Is Legit, But Risky

Last year, Overstock.com Inc (NASDAQ:OSTK) seemed to have gone back into a time warp. That is, things looked like they were back in the glory days of the dot-com boom as OSTK stock spiked from $17 to $64!

So this time around, might the situation be different? Will OSTK stock be able to continue the gains? Well, so far, the momentum has not lagged during the new year. Hey, OSTK stock is up about 27%.

Of course, the company has become a way for investors to play the sizzling cryptocurrency market. Yet Overstock is not one of those operators that have jumped on the bandwagon recently. Keep in mind that CEO Patrick Byrne has certainly been a visionary in the category. In fact, his e-commerce platform was one of the first to adopt bitcoin for purchases.

But this was only the start. Back in late 2014, he began his efforts to focus on blockchain technology, which is the underlying system for cryptocurrencies like bitcoin. This became part of a wholly-owned subsidiary called Medici Ventures. A key part of this involved two majority owned broker-dealers, which have been folded into the tZERO subsidiary. Then over time, Medici has made a variety of minority venture investments in blockchain operators, such as:

  • SettleMint: This is a software company that develops middleware solutions for blockchain systems.
  • PeerNova: This company builds big data and cloud technologies for financial institutions, so as to help with audits and compliance.
  • IdentityMind: This startup builds systems for fraud prevention and risk management for e-commerce and payments.

But there have been some other creative ventures. For example, Bryne has struck a partnership with economist Hernando de Soto. The plan is to build a new company to revolutionize the tracking of property rights in developing nations.

Although, perhaps the most interesting move from Bryne is the launch of a ICO (Initial Coin Offering) of up to $250 million.

So given that the markets have gone ga-ga over cryptocurrencies, it should be no surprise that OSTK has gone stratospheric.

OSTK Stock And Cryptocurrencies

While the gains in cryptocurrencies have been staggering, the risks are still considerable. Note that the Securities and Exchange Commission is getting concerned and may increase its focus on ICOs. There are also worries that the IRS may get more aggressive.  And yes, various governments around the world are getting antsy.

What’s more, the market for cryptocurrencies is far from transparent or secure. Consider that there have been high-profile hacks, which have cost investors millions.

Yet perhaps the biggest risk is that the market appears to be bubbly. According to InvestorPlace.com’s Larry Ramer:

“So it seems that, as in all the past bubbles I’ve mentioned, this cryptocurrency is being bid up not based on any logical belief or intrinsic value, but only because everyone thinks it will keep going up, which is the top ingredient for a bubble.”

Bottom Line On OSTK Stock

Of course, when it comes to OSTK stock, the main driver is the cryptocurrency market. The core e-commerce business, on the other hand, is really a non-factor. Although, Bryne has noted that he is willing to sell it off, which would mean even more cash for his efforts.

And there would likely be willing buyers of the business. After all, major retailers like Wal-Mart Stores Inc (NYSE:WMT), Target Corporation (NYSE:TGT) and Macy’s Inc (NYSE:M) are looking for ways to bolster their e-commerce efforts.

Despite all this, investors really need to be cautious with OSTK stock. The market for blockchain is still in the early phases and will probably take some time to reach critical mass. If anything, OSTK stock is essentially a venture capital play.  In other words, it’s a good bet that there will remain quite a bit of volatility.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2018/01/overstocks-bitcoin-play-is-legit-but-risky/.

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