Re-printed from Dennis Consorte newsletter
Patrick Byrne, the CEO of e-commerce company Overstock, has long been a proponent of blockchain and cryptocurrency, and he’s putting his money where his mouth is. A bevy of blockchain-supported projects has investors looking twice at Overstock’s growth potential, following its more than 200 percent jump in value during the last half of 2017. This growth has largely come on the back of announcements regarding the company’s plans – and they are big plans, indeed.
Overstock’s transition from e-commerce to cryptocurrency and blockchain has been years in the making. In 2014, the company became the first major U.S. retailer to accept Bitcoin. Overstock became the first publicly traded company to trade more than 126,000 shares using blockchain technology over the internet starting in 2016. Not only did Overstock facilitate its trades over the blockchain, but it also accepts digital currency as payment. They started with accepting Bitcoin, and in August, the company announced it would also begin accepting more than 40 other kinds of cryptocurrency with the support of Swiss crypto-processing company ShapeShift. The company also retained half of all Bitcoins transacted on Overstock as investments.
These projects proved promising for Overstock, which has seen a steady increase in its stock price – growing from $24.60 per share on September 1 to $75.80 per share, at its peak, on Dec. 18 – through the last quarter of the year, largely on the back of news about its blockchain and crypto-based projects.
And as it turns out, this was just the beginning. Byrne is reportedly considering selling Overstock’s e-commerce division to solely focus on the company’s blockchain endeavors. The most recent, an initial coin offering (ICO) for subsidiary tZero, sets the foundation for a new type of digital securities exchange, the first of its kind regulated by the U.S. Securities and Exchange Commission (SEC).
What is tZero?
The platform, tZero is the first fully licensed, blockchain-based alternative trading system. The company serves as a type of securities exchange known as a “dark pool,” which directly connects buyers and sellers without the intermediary of a broker. This stands in contrast with the way conventional securities trading operates on Wall Street.
As a “modular, adaptable platform,” tZero will bring participants together in real-time to trade coins on a blockchain-based exchange. After three years of work, tZero emerged as the only licensed platform for trading digital securities, fully compliant with SEC regulations and the Financial Industry Regulatory Authority’s (FINRA) guidelines. Such a platform became a necessity after ICOs raised more than $2.27 billion in 2017, a 2,170 percent increase from 2016. The platform is intended to serve as a trusted place to buy and sell, which is in high demand since the SEC warned investors of fraudulent or disingenuous ICOs.
“We built a blockchain version of Wall Street,” Byrne told TheStreet. “As these tokens become available… they’re going to be trading on our system. No one else has such a system at the moment.”
tZero leverages “Digital Locate Receipts” (DLRs), which capture all inventory and audit trail information, storing it permanently in the company’s proprietary blockchain. Any user on the network can view and bid on DLRs because of blockchains transparent and distributed nature. All purchases are registered to the blockchain to create a permanent record of transactions. Not only does this simplify regulatory oversight, but it cuts out middlemen and traditional Wall Street institutions.
Byrne added that the majority of the “mischief” occurring on Wall Street is because the trade and settlement of securities are separated by a broker-dealer. However, on the blockchain, the trade and settlement are unified, eliminating illicit activity.
In other words, the buyer and seller trade directly, without handing off the securities deal to a third party. Unifying buyer and seller results in lower transaction costs, such as fees, and increasing transparency into the way the capital market operates.
Investors responded to the idea enthusiastically. Last week, tZero launched its own ICO and raised more than $100 million from accredited investors in its first 12 hours.
But it’s not just a licensed exchange for digital securities that’s attracting so much attention. There is a larger vision at work that Byrne hopes will expand access to capital around the world, and it has the potential to be highly lucrative.
Some investment experts anticipate even further growth for Overstock in the wake of the tZero ICO. According to Evelyn Cheng’s article on CNBC, Independent investor and longtime Overstock critic Mark Cohodes predicted in October the stock would reach $100 per share. Some investors are even more bullish, but DA Davidson analyst Tom Forte told CNBC to expect some volatility, like the kind “historically limited to when the company reported earnings.”
However, tZero’s selling point – its licensing and the regulation that comes along with it – could also be a potential downside compared with other exchanges. Because it is subject to the U.S. SEC oversight, the typical red tape and bureaucratic hold ups will likely apply.
How does Byrne plan to use tZero to “democratize capital” in developing markets and what are the potential payoffs? Could this project be the thing that sends Overstock’s share price skyrocketing? The answers might surprise you, and it involves a partnership with a well-known economist. Keep reading to find out more.