Overstock’s Path From Dot-Com-Bubble Ruins to Blockchain Ecosystem

On Sept. 19, former Overstock.com CEO Patrick Byrne sold his entire stake in the firm, which accounted for 13% of the company and was worth over $90 million. While the move surprised many, those closely following Patrick’s eccentric personality saw it coming from a mile away. 

Overstock was launched in May 1999. In the early days of the internet, it worked as an online marketplace that sold surplus goods from failed dot-com companies. It had a competitive advantage by selling at rates lower than wholesale prices. Its business model still hasn’t changed, selling closeout home decor, furniture, bedding and more.

Thanks to Byrne, Bitcoin was being accepted as a payment option on Overstock.com way back in 2014. In fact, it was the first major retail outlet to do so. Byrne’s love for Bitcoin was fueled by his disdain for Wall Street and mainstream finance. He did not even hold a traditional initial public offering (IPO) but rather raised money directly from investors via a Dutch IPO.

Overstock’s move to accept Bitcoin early on has made it a pioneer of crypto adoption. Igor Chugunov, CEO and founder of Credits Blockchain Platform, summed up how Overstock helped the mass market ease into the crypto world when he told Cointelegraph: 

“It creates an appropriate environment for the popularization of cryptocurrencies by introducing innovative fast payment systems that will simplify purchases and sales using cross-border transfers and serve as an incentive for the e-commerce industry and many others.”

Subscribing to the ideas of the Austrian school of economics, Byrne believes that the economy shouldn’t be in the hands of a central authority but rather the individuals. On these lines, he said:

“These institutions that we get told are neutral and are governing society neutrally [...] become the tools of the powerful to oppress the weak.”

Bitcoin and Overstock

Through a partnership with Coinbase, Overstock started to accept Bitcoin in January 2014. Byrne claimed that this move saved the company five years of integrating it into its adoption cycle. Looking at the current trend of large institutions jumping on the bandwagon of accepting crypto payments, he seems to be right. 

The move was triggered by an interview in which he said that the company might start accepting Bitcoin. Even though it seemed to be an off-the-cuff comment, as the media jumped on this news, Byrne quickly got in touch with Coinbase to make it happen. 

Overstock.com accepting crypto early on kept the company and Byrne in the spotlight of the crypto world — and being a Wall Street critic bolstered his reputation within both the company and the community. Furthermore, the retailer’s long-term strategy of increasing corporate-wide use of Bitcoin combined with its philosophy toward education, incentives and motivation are seen as critical means to support the mass adoption of cryptocurrencies.

Back in August 2017, the firm announced it would keep half of its Bitcoin payments as an investment. However, the company’s association with crypto forced its share price to fall over 11% in January 2018, when the valuation of Bitcoin fell by over 50%. 

Still, Byrne is a blockchain-before-Bitcoin kind of guy. To demonstrate his trust in blockchain, he launched a venture capital firm within Overstock called Medici Ventures, intended to fund blockchain startups with Byrne’s personal finances. 

The biggest crypto subsidiary of Overstock.com is tZERO, which aims to remove brokers and compete with traditional stock exchanges. In August 2018, Hong Kong-based private equity firm GSR Capital invested $270 million in tZERO.

Overstock CEO sells his stock

Byrne’s recent move of selling Overstock shares is nothing new for him. Back in September 2018, he sold around $20 million of his stock in just two days. Even though he requested investors not panic in an open letter and assured them that he is “still in the game,” the company’s share price consequently fell by 12%.

The final sell-off should not have come as a surprise to his investors. Days prior to doing so, he had promised that he would “reinvest most of this money into two co-investments with Overstock and Medici Ventures.” Then, perhaps unsurprisingly, Medici made a $2 million investment on Sept. 26 into Salt Lake City-based Evernym, a startup that develops blockchain-based self-sovereign identity. Another reason he cited was to meet tax obligations, saying that he needed to “pay Uncle Sam his cut.”

Back then, Byrne was playing down his inclination for selling his stocks to invest in blockchain, saying that he has “only ever sold a tiny sliver” of his stake. But now, Byrne has placed all his bets on blockchain technology. 

Byrne resigned from Overstock on Aug. 22, but even then spoke about how blockchain will revolutionize the world and will “reshape key social institutions.” He also cited his controversial relationship with Maria Butina, a self-confessed foreign agent, as one of the primary reasons for his departure. 

On Sept. 19, he cashed out 4.8 million Overstock (OSTKO) shares worth 13% of the entire company. Filings from the United States Securities and Exchange Commission (SEC) reveal that he was selling his shares for increasingly lower prices, ranging from $21.84 to $16.32. OSTKO shares were hitting a 52-week high prior to Byrne’s selling spree, but saw a notable drop afterward and fell continuously after Sept. 12. 

It’s never a wise investment decision to over-allocate your portfolio into one or two assets. Byrne’s situation seems unique, however, and he therefore had to find a different solution that worked. When talking about Byrne doubling down on crypto, Michael Yuan, founder of decentralized marketplace OpenBay told Cointelegraph: 

“I’m not a financial advisor, but diversification is typically a better risk management strategy. That said, Byrne continued — and increasing — faith in crypto as a good, long-term investment certainly augurs well for other crypto investors to stay the course.”

Overstock continues to be blockchain-friendly

Byrne initially received a warm response from investors when Overstock.com announced the big push into blockchain, but its cryptocurrency-focused Medici Ventures subsidiary has been relatively slow to make headway. When Medici Ventures disclosed that it was part of an SEC investigation into cryptocurrency-related companies, Overstock shares fell.

When Byrne resigned, there were questions being asked about Overstock’s commitment to blockchain technology. His position as CEO was filled by Jonathan Johnson, while Kamelia Aryafar took his place as vice president and board member of Overstock Retail. Johnson was earlier acting as the company’s interim CEO but was formally inducted as CEO on Sept. 23.

Almost a month after Byrne’s resignation, Johnson announced that the company was planning on liberalizing its planned digital dividend share trading. According to Byrne, this was designed in an effort to minimize the influence of short-sellers and the company is working with the SEC to make its blockchain-based digital dividends freely tradable by nonaffiliates following distribution.

Shortly after, on Sept. 24, Overstock filed an S-3 form for the registration of its blockchain-based digital preferred stock with the SEC. Jonathan said that the filing represents the company’s first step in its registration of the OSTKO dividend. Shareholders will get a single unit of the Series A-1 preferred stock for every 10 common shares of the company. 

However, to acquire the asset, potential shareholders have to set up an account with Dinosaur Financial Group to access PRO Securities, the trading system developed by Overstock’s tZERO.