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Overstock to Ditch Retail for Crypto

December 07, 2018

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Attention-grabbing Overstock is in the spotlight again. Its CEO wants to invest in crypto ventures.

One of the largest online retailers, Overstock,  is leaving ecommerce. The retailer is struggling with heated competition from Amazon. Founder and CEO Patrick Byrne is selling the entire business this coming February.

Yes, he’s going all in.

Byrne hasn’t discussed buyers or the sale’s value. He stated he wants to invest in blockchain and cryptocurrency startups. But, the move is shaking heads. With $175 million invested in subsidiary Medici Ventures, Overstock’s subsidiary isn’t paying off well. Medici lost $22 million in 2017 and this year they lost  $39 million. Medici, a pet project for Byrne, started in 2014 and he’s yet to return a profit on his $175 million investment.

Overstock is a Salt Lake City-based company that started in 1999 and served as a way to liquidate merchandise and sell surplus and returned items. The business ventured into kitchen appliances, clothing, jewelry, bedding, and home goods. In 2011, they made an announcement that they would rebrand Overstock to O.co. By 2014, they started accepting bitcoin (BTC-USC)  as a currency for merchandise. Despite the announcement to allow Bitcoin transactions through Overstock, shares dropped.

A  concern is Overstock’s price fluctuations correlate to that of Bitcoin’s. Another concern is Byrne’s ability to lead the retailer through its self-reinvention. To justify his sale of 10% of Overstock shares, Byrne sent what some are calling a “bizarre” shareholder letter.

Byrne cited, “I am disappointed that I when the deadline arrived for my sales  this quarter, the stock had dropped (I sadly note that over the last 180 days the correlation between OSTK’s and Bitcoin’s daily moves has  been 85.5%, and again warn people: we don’t have significant holdings of Bitcoin).”

Trading fluctuations with Bitcoin and the market capitalization aren’t consistent. And, Byrne is scaling himself pretty thin. With Medici, one of their investments tZero still hasn’t launched publicly. When asked about the trading system startup, Byrne stated, “I don’t care whether tZero is losing $2 million a month. We think we’ve got cold fusion on the blockchain side.”

Bitcoin has a first-mover advantage, but its a risky move investors can’t gauge. Byrne’s plans with Overstock may prove futile given Bitcoins high volatility. Seasoned investors are cautious. They want to give crypto and blockchain sectors more time for consistent growth. Customers may likely split between Amazon and Walmart for available online deals. But, shareholders may need to hold on for a bumpy ride.

Technology is seeing more usage for cryptocurrencies and blockchains. Supply chain businesses and retailers are leveraging tech which Gartner predicted. Businesses are exploring smart contracts and ways to use blockchains for added transparency. And, Microsoft Azure released a software development kit (SDK) to simplify end-to-end blockchain usage.

Despite future growth potential, cryptocurrencies are taking one heck of a roller-coaster ride. And so is Overstock. Overstock rallied by 26% with Byrne’s WSJ announcement, but shares are down 70% from an $80 high last January. They closed at $17.94  November 27th but dipped as low as $17.01. While Byrne suggests his moves have long-term potential, he appears to be acting on whims as volatile as Bitcoin’s history. And historically speaking, that’s a mighty big gamble.

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