On January 9, 2014, online retailer Overstock.com, (OSTK) started accepting bitcoins. In justification of the decision, the company said it expected to generate close to $5M in bitcoin-transacted sales before the end of 2014. Within eight weeks, bitcoin holders had spent more than $1M on the platform, prompting CEO Patrick Byrne to announce a revised estimate. The company now believes it will generate $10-15M during 2014 from bitcoin sales. The update highlights the growing acceptance of bitcoin as a viable medium of exchange, but many investors are still wary of gaining exposure to the digital currency, citing volatility as a risk factor. However, there is a way to gain exposure to bitcoin popularity that eliminates the danger of bitcoin value fluctuation-Bitcoin Shop Inc, (BTCS), I.

What is Bitcoin Shop?

Developed and introduced early last year by two former NASA engineers, Bitcoin Shop is an early mover in the ecommerce virtual currency ecosystem. The platform is a sort of product aggregator, which at present offers approximately 140,000 goods through an Amazon affiliation. The company went public in January this year via a reverse merger with TouchIT Technologies, Inc., a company that formerly developed and manufactured touchscreen technology. Post-merger, TouchIT changed its name to Bitcoin Shop and completely shifted its focus towards ecommerce.



According to a recent CNBC interview, Bitcoin Shop CEO Charles Allen stated the reverse merger made sense over a traditional IPO "for three reasons. First off publicity. Our company sells products to consumers and they pay with bitcoin, so the publicity we're getting from being public is immense. Second is transparency. There has been skepticism around bitcoins in general, and being public will give both customers and investors the opportunity to look under the hood. The third is time to market. We closed this deal in three weeks, which includes doing the merger, pinning out the assets and raising almost $3M."



As a product aggregator, the company does not have any inventory or a logistics chain. Instead, Bitcoin Shop leverages the resources of suppliers, currently just Amazon, redirecting customer orders towards the online commerce behemoth and letting Amazon handle the picking, packing and delivery.



Why Invest In Bitcoin Shop Over Actual Bitcoins?

The answer to this question lies in the volatility risk alluded to in this piece's introduction. Investors will likely be aware of the large fluctuations in the price of bitcoin over the last six months. Having traded at a value of less than $200, bitcoin rose to $1,200 during November 2013, before falling to approximately $500 during December. As an average across a number of exchanges, one bitcoin is currently worth approximately $658.



This volatility is the primary driver behind investors' reluctance to get involved in the currency, and the most referenced attribute in the currency's media coverage. Bitcoin Shop's business model removes this risk, as the prices of its goods constantly update to reflect the value of bitcoin. Through this constant update process, irrespective of the value of bitcoin the company can ensure it always receives the correct dollar value for the goods it sells. Once a transaction completes, Bitcoin Shop immediately exchanges 80% the bitcoin it receives into USD and holds it as cash, only holding 20% of revenues in the digital currency.



As a result, Bitcoin Shop stock offers investors exposure to the growing acceptance of the digital currency, without exposing them to the large potential losses associated with a pure bitcoin holding.



What Advantage Does Bitcoin Shop Have Over Other Ecommerce Sites?

The answer to this question lies in interchange fees. Interchange fees, more commonly referred to as processing fees, are the fees set by payment networks (Visa, MasterCard etc.) and is the fee between banks for the acceptance of card transactions. The average fee across the major networks is a little between 2-3%, and Amazon builds these fees into the pricing of its items. Put simply, an Amazon customer that uses a credit card to purchase an item pays a 2-3% premium on each purchase.



In contrast, bitcoin transaction costs average at less than 1%, meaning Bitcoin Shop could offer goods at a discount to those on other ecommerce sites like Amazon.



Growth and Potential

Bitcoin Shop currently only offers goods through an affiliation with Amazon. However, the company plans to expand its offerings through further affiliations with other large retailers. During 2014, the Bitcoin Shop is targeting Best Buy, Target, Pet Smart, JCPenney and Walmart.



One of the benefits of the company's aggregator model ties in with this expansion. Because Bitcoin Shop has no need for stock storage facilities, it can theoretically grow to offer an infinite number of items with server space and web real estate being the only real expansionary costs once the initial administrative and operational costs of securing affiliation are met.

Metrics

The company has only just gone public, meaning there are currently no available financial metrics to help investors in their analysis. There are however, a number of non-financial metrics that offer insight into the company's performance. These are products sold, total products offered, site traffic and total registered users.



During Q32013, the Bitcoin Shop sold just 88 products, just shy of three a day. During Q4 2013, this grew 1,300% to 1,266 items. During the same period, the company grew its total product offering from 30,000 to 135,000.



Perhaps more importantly, between Q3 2013 and Q4 2013 the company grew unique visits to its platform and page views from 9,000 to 68,000 and 46,000 to 395,000 respectively. In addition, the platform's total registered users grew from 106 to 750 during the same period.

Risks

Investors need realize that, at this stage, Bitcoin Shop is a risky investment candidate. With the company going public via reverse merger, there is no information available as to the company's performance aside from the non-financial metrics covered in the previous section. Without any concrete figures, investors must invest based solely on expectations of the concept's success. Of course, the company's stock reflects this fact.



In addition, while the company eliminates investors' exposure to the fluctuations in the value of bitcoin, it does not eliminate the risk that bitcoin will fail to gain mainstream acceptance. There is still a long way to go before the general ecommerce population migrates to the cryptocurrency, and since Bitcoin Shop only transacts using Bitcoin, the company relies heavily on this migration.

Looking Forward

Bitcoin Shop is clearly in the very early stages of its development, as is the bitcoin currency. However, if the digital currency finds its place as an online method of exchange then early adopters of the concept will be the first to benefit. If Bitcoin Shop can continue to expand both its user base and goods offering, it could become a growth stock in a potentially huge, brand new industry.