Merchant Innovation

Overstock May Ditch Its Blockchain Trading Unit

Overstock's recent quarterly earnings revealed that it will spend as much as $8 million on its blockchain trading subsidiary this year alone — which has made the company consider spinning off the business all together.

The unit, known as Medici, has been a bit of a struggle for the business. In June, the retail giant announced it has lost $117,000 in its investments in the digital currency space. Its cryptocurrency holdings at the time were valued at $233,000, which is down from the $340,000 reported at the end of 2014.

Overstock has spent $3.2 million on the unit, the company reported, and because of the massive undertaking it is to manage, Overstock's CEO Patrick Byrne indicated that the company has spent far more than its estimated $2 million-$3 million on the business. While the extra spending was for new opportunities seen in the space, he indicated it could not be co-managed with the retail business.

"Our expense control is good but the sales and especially the contribution margin has not come in as anticipated. That’s where the Medici is. So, I have no qualms or concerns that we’re not going to be able to manage our expenses to whatever growth we’re able to achieve. And, in fact, we have risen our expenses that we’ve structured in a certain way to make them easier to manage," Byrne said.

During the earnings call with analysts this week, he also shared a bit more about blockchain's potential. Despite his belief in the technology, it may not be enough to keep the unit under Overstock's umbrella.

"We got a real jump on the [blockchain] world. We’ve put together some crypto enthusiast developers, lawyers, our developers and a bunch of finance people from Wall Street. And we started working on creating a crypto Wall Street over a year ago," Byrne remarked, pointing to the five patents Overstock has in the crypto-capital industry.

"But when you add shared overhead services, dual-tasked employees, load factors, the real cost of this isn’t $8 million; it’s probably something closer to twice that," he added.

He later goes on to share his mixed views on potentially getting out of the blockchain business.

"I may regret that we’re not putting the pedal to the metal even more than we are out on this. The world is recognizing that the blockchain is going to change history. I think it may be more significant than Internet itself. For some political reason, I described in my letter that all kinds of central institutions that get disruptive, they get turned into buggy whip businesses," Byrne said.

But for now, Overstock remains focused on bouncing back from its $2.1 million quarterly loss.

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