I remember the days when Overstock.com (NASDAQ:OSTK) forwarded a brilliant business idea. Rather than let closeout merchandise sit in physical locations, Overstock drove sales through the then-burgeoning e-commerce platform. Such a groundbreaking concept eventually catapulted the OSTK stock price to unprecedented heights before an equally dramatic pullback.
In recent years, Overstock made headlines for another business venture. Moving completely away from the retail sector, the company decided to dive headfirst into the world of blockchain. Management created a subsidiary called tZERO, a cryptocurrency exchange that ultimately seeks to become a Wall Street alternative by way of selling security tokens.
Although the shift surprised many onlookers, in reality, this was a long time coming. Overstock CEO Patrick Byrne is similar to many ego-maniacs in that he can dish out criticism but cannot take it. On several occasions, Byrne has taken Wall Street to task for perceived ills. But with tZERO, we can theoretically enjoy a new era of financial transparency.
On Thursday, OSTK put this theory to the test. After much anticipation, the tZERO crypto-trading platform finally launched.
If we simply based tZERO’s potential impact on the OSTK stock price, the platform has a bright future. Shares jumped nearly 10% off the service launch.
However, that’s a small drop in the bucket compared to the horrific losses that OSTK stock incurred last year. Therefore, I can understand why this latest move wouldn’t swing the needle for most prospective buyers.
Then again, best practices dictate buying low and selling high. Certainly, the OSTK stock price qualifies as a low-entry point. But if you’re thinking about taking a dip into what my colleague Will Ashworth called a “blockchain incubator,” here are three reasons to think about something else:
TZERO Doesn’t Solve Anything
Like Tesla’s (NASDAQ:TSLA) Elon Musk, Byrne is an ideas man. The difference is that Musk’s ideas work. On the other hand, Byrne’s lofty ambitions remain firmly in the theoretical, and some may argue delusional.
The biggest problem that I have with OSTK stock is that it’s now a genuine blockchain investment. Don’t get me wrong: If you followed my work over the past two years, you know that I believe in bitcoin’s future potential …
But this is also where people conflate what they want to hear with what actually is. While I’m sure the tZERO exchange is a wonderful addition to the blockchain industry, it doesn’t do anything unique. Security tokens have been around for some time; Cryptocurrency exchanges have been around previously … it’s a rehash of what we’ve seen before, and there are plenty of other security token exchanges to come.
Even worse, tZERO doesn’t solve anything. Bear in mind that Byrne developed this platform with the end goal of changing the fundamental nature of western capitalism. But the mere existence of crypto exchanges will not contribute anything meaningful toward this endeavor.
Look, companies like Coinbase have been around for several years now. Did our business and financial structures change because of their existence? Nope. Therefore, we shouldn’t expect anything different with tZERO.
History Repeats for OSTK Stock
As I look at the long-term chart for OSTK stock price, I can’t help but notice eery parallels. When Overstock first launched as a company, it ran on a novel idea advantaging a transformative technology. In the company’s second life, it’s also harnessing a new innovation.
Moreover, OSTK stock jumped to record-breaking highs, first as an e-commerce company, and later as a blockchain incubator. As well, shares collapsed from those highs.
Of course, in the first go-around, we have the benefit of hindsight. Overstock attempted to stay relevant with its initial emphasis on liquidated or surplus goods. Later, it moved on to auctioned items and new products. However, the advent of Amazon (NASDAQ:AMZN) and similar competitors made life difficult.
In fact, Ashworth wrote that Overstock’s transition to the blockchain is just a distraction from its original, unprofitable business. So even with the benefit of coming up with a fresh concept, OSTK stock failed.
Now, management is doing the same thing with the blockchain. But this time, they don’t have a fresh concept. They’re taking an old idea, and running with it behind everybody else. This segues into my next point:
OSTK Must Overcome the ‘Meh’ Effect
If tZERO launched in 2009 instead of 2019, I wouldn’t be writing this story. In this alternate universe, people would mention Byrne in the same vein as former Apple (NASDAQ:AAPL) CEO Steve Jobs.
But I’m afraid that DeLorean stalled before it could hit 88 miles per hour. As things stand in reality, Overstock is joining the party way too late. Worse yet, they’re launching at a time when no one cares about cryptocurrencies.
If they had launched just two years ago, they could have at least rode crypto-mania to the top. Instead, they’re entering into the doldrums. It’s so bad right now that I can’t even find negative articles about bitcoin. People don’t care enough to say how terrible it is.
Considering that their retail business isn’t going anywhere, management dropped the ball. If they couldn’t strike when the iron was hot, they shouldn’t have bothered at all.
Bottom Line on Overstock
As you know, the cryptocurrency markets have taken a beating. However, the blockchain technology driving decentralized investing platforms remains both relevant and viable. Therefore, it won’t surprise me if bitcoin and other digital assets start moving higher.
If so, I can easily see the OSTK stock price rising in solidarity. But I would caution against conflating emotion-driven bullishness with fundamentally-sound optimism. Ultimately, Overstock is a poorly managed organization associated with a groundbreaking platform.
This means you can probably profit from trading OSTK in certain circumstances. You can also say the same thing about bitcoin. But with the latter, you’re not directly exposed to crazy people or ideas.
As of this writing, Josh Enomoto is long bitcoin.