Overstock: Cryptocurrency’s Reverse Merger?

My journey into cryptocurrency began when I bought one Bitcoin after reading about it. I forgot about that BTC for a while and when I checked it again, the thing had greatly increased in value. Since then, I have gone on to lose and gain and lose and gain with other cryptocurrency projects. But considering that I’m financially comfortable, my quest is less about the money and more about what we can achieve with Steem and other cryptocurrencies.

Overstock was one of the first major companies to engage in cryptocurrency. Patrick Byrne, its founder and CEO, is a huge crypto advocate. He announced several years ago that Overstock would accept Bitcoin (one of the first major businesses to do so) and later announced its interest in creating an asset exchange. Overstock also has pursued plans for an ICO, which would allow people to own some of its value in the form of its cryptocurrency. In addition, through its Medici Ventures subsidiary, Overstock has other investments in the crypto space.

In early August 2018, the company announced that Hong Kong private equity fund GSR Capital was making a major investment. Part of GSR’s investment is in tZERO tokens; GSR expressed excitement at participating in Overstock's plans for a tZERO asset exchange.

According to CNN Money, Overstock essentially has become a crypto company.

Fading Retail Business, Growing Cryptocurrency Business

I’ve never purchased anything from Overstock. I wanted to support what they were doing, but after looking at the retail site a few times, I couldn’t find anything I really wanted to buy there (perhaps because I don't have any pressing needs). And in general, I don’t like using Bitcoin for purchases because it’s a first-generation prototype that can take too long to confirm a transaction. Other cryptocurrencies, such as Steem (which is virtually instant and free to send) seem better suited as a medium of transaction. Bitcoin itself is more of an investment in the future of this sector.

Apparently, I’m not alone in not being able to find anything to buy at Overstock. The company’s retail business has been declining along with its stock price. Keeping up with the Amazons is tough business. But it continues to make investments in the cryptocurrency space, which show much more promise. In effect, Overstock seems to be focusing more on the cryptocurrency space and less on the retail business that once was its core.

Over time, it is easy to imagine that the retail business may fade further while Overstock essentially becomes a cryptocurrency VC fund and exchange.

Going Where No U.S. Public Company Has Gone Before

There’s one major problem with this, which Patrick Byrne seems to view more as an opportunity. Overstock remains a public company in the United States. Translation: every move it makes is heavily regulated. Short of applying to sell alcohol or become a bank, it’s hard to imagine any sphere with more paperwork and regulatory hurdles than public companies face in the United States.

Have you ever heard of the term ‘reverse merger’? It’s when a private business takes over the shell of an older company that already has a stock trading symbol. For example, there might be an old oil drilling company that has experienced tough times and basically has become a failing business. At the same time, there is a new gold mining company with a promising claim. The gold company would love to make its stock available to mainstream investors, but it does not want to face the long, difficult process of getting on an exchange and issuing an IPO.

So what does it do? It merges with the older shell of a company, taking over its name and having a ready-made ability to offer stock. That is known as a reverse merger. Most mergers occur when one company wants to join another which has some successful ingredients. In the reverse merger, it’s the smaller company coming in to take on the older, existing one, perhaps for the sole reason that it can use that company’s trading.

Taking Some Hits for the Team

Every trailblazer in the cryptocurrency space uses its own money to fight battles and win precedents that will benefit this entire sector. Several years ago, for example, Coinbase and Bitpay hired their own lobbyists in Washington, DC to help explain cryptocurrency to members of Congress and of the federal agencies. When a damaging bill is killed or the government creates a new law that is supportive, we partly have these private companies to thank.

Similarly, as another example, the CEO of Binance has travelled the world to seek governments that are friendly for his cryptocurrency exchange. At a surface level, the work may be in his own best interest. But he also has helped the entire sector by devoting his time, energy, and money to explaining cryptocurrency to these governments and serving as a bright spokesman for it.

Patrick Byrne and Overstock also have suffered some blows on behalf of the larger team. We probably have not heard about most of them because they have taken place in private conversations and negotiations with regulatory agencies. In pushing for an ICO of a public company, Overstock has gone where no company has gone before. And even if it has not yet succeeded in getting the government to allow what it wants, it has succeeded in educating government leaders and learning a lot more about what is possible under the present regulatory scheme. Progress takes time and it is not always visible.

Why on earth would anyone CHOOSE to use a public company for an ICO? Instead, they could create a shell company in some offshore tax haven and run their experiments somewhere that does not have so much regulatory scrutiny, giving them a much freer hand to do things their own way. But Byrne and his crew are trailblazers. They invite the regulatory scrutiny that intimidates others. They aim to address the doubts, answer the questions, educate the officials involved, and perhaps over time transform that same regulatory scheme so that it is more accommodating to the needs of average people and entrepreneurs.

As CNN Money noted recently, Overstock is basically becoming a cryptocurrency company. And if that’s true, then it’s something of a reverse merger for the cryptocurrency sphere. GSR Capital's recent venture capital investment into Overstock and its crypto business indicates that some investors like what they see. Overstock has the public company status and the stock trading symbol (and goes through the regulatory headaches). Meanwhile, cryptocurrency projects provide the main driver of value. Doing so as a public company will not be easy, but to paraphrase Charles Dickens, it’s a far, far better thing that Overstock does (than it could be doing).

References:

https://money.cnn.com/2018/08/10/technology/overstock-blockchain-bitcoin-investment-earnings/index.html
https://www.investopedia.com/articles/stocks/09/introduction-reverse-mergers.asp

Disclaimers: Are not needed because I do not own stock or tokens in this company. But I enjoy following its crypto transformation. All images are public domain, except for top photo, which is from CNBC.com.