The announcement that Overstock.com will create an Alternative Trading System (ATS) offers an intriguing reinvention for a dot-com-generation business model.
The announcement is a positive step for the cryptocurrency industry and may help clear up some of the regulatory gray zone of selling token securities to U.S. citizens.
Those who have an interest in investing their money in tokens as securities will soon have the ability to legally do so, just like normal investments in stocks or funds. At the same time, this makes it even more important for blockchain-based startups to clarify their mission, message and token utility as a company, and to craft a plan to adapt to potential future regulation, which could possibly be enacted without a grace period or grandfather clause.
In the current environment, those who plan on issuing digital tokens in an ICO or TGE are faced with the dilemma of either: 1) creating a very well-defined work or utility token that cannot by any reasonable definition be considered a security; or 2) going ahead and defining their token offering as a security and giving up some of their liquidity, in order to be compliant and legally exchange-tradeable.
With this development, if a company is making the promise of value appreciation to potential investors, there now exists a regulated market with clear oversight and tax implications coming into place. Overstock’s new exchange can ease decisions for some companies who are currently in a nebulous area, and provide even more issuance volume to a growing space.
Though the project remains in its early stages, Overstock’s share price rose by more than 20% following the announcement. This represents a broader interest in the cryptocurrency exchange market. Many believe Overstock will benefit in the long term with this platform. The platform will also put increasing pressure on other exchanges that may trade securities tokens to take steps to become compliant with SEC and FINRA regulations.
The creation of such platforms signals a trend, as Overstock is not the only company to launch an alternative trading system recently. Templum, a blockchain technology firm, has released a similar platform that will allow tokens to trade on a secondary market, as well as issuance through ICOs. The news that two regulated exchanges are in the works bring maturity to the cryptocurrency asset class.
Many bitcoin and ethereum holders will likely take pause about some of the bets they are making, and as a result, take money off the table. Investors may fear that the token they are trading could be subject to securities law, and in turn decide to liquidate portions of their position. It will be interesting to observe how both crypto-investors and companies react to the introduction of a financially regulated exchange in the crypto industry.