Overstock Purchases 24.9% of Unknown Broker-Dealer

Overstock, the company behind the Medici project that aims to use Bitcoin and blockchain technology to bring a stock exchange and stock ownership to the decentralized network, declared in its annual 10-K filing with the SEC that it has acquired a 24.9% interest in a registered broker-dealer. This was purchased for $250,000. According to the document,

"During 2014, we acquired a 24.9% interest in a registered broker-dealer as part of our efforts to develop and license software to trade cryptosecurities using the Bitcoin network and its protocols."

Overstock CEO Patrick Byrne maintains that Wall Street had manipulated its stock, and is suing Merrill Lynch for naked short selling stock manipulation in an effort to drive down its share price. The case is yet to go to trial. In the 10-K report, the company lists stock manipulation as one of the risk factors that could affect the stock, stating “The price of our stock may be vulnerable to manipulation.” Risk factors are required to be present per SEC regulations.

Mr. Byrne believes that by breaking the monopoly of Wall Street on trading and settlement of securities, the markets will be less susceptible to manipulation. He started the Medici project to build a system that would rival the current trading and settlement industry by building the infrastructure on top of the current Bitcoin blockchain.

Overstock began accepting Bitcoin as payment for goods sold on its website last year and is one of the largest companies to accept Bitcoin as payment. Overstock lists several risk factors associated with its Bitcoin foray, such as foreign governments banning the use of cryptocurrencies and the inability of third parties to process Bitcoin payments. Currently, Overstock uses Coinbase to convert between Bitcoin to fiat. Overstock is also subject to exchange rate risk, since it doesn’t immediately convert all of its Bitcoin into fiat but instead holds on to a percentage of Bitcoin as an investment.

The Medici project initially was announced to be built on top of Counterparty, a meta-protocol on top of the Bitcoin blockchain. The founders of Overstock joined the project full-time. However, only after a few months, it appeared that they may not end up using Counterparty and the core team has since left the company and is working on its own version of disrupting the financial industry.

Several startups are working towards a financial system that would utilize the cryptocurrency blockchain technology to replicate some of the financial infrastructure. Companies need to create a decentralized trading platform while also providing settling mechanisms, which is currently handled by the back-office in collaboration with DTCC, the central securities depository in the United States. The CFTC and other organizations believe that Bitcoin and blockchain technology might have a role to play in other financial instruments as well, such as futures and forwards.