Can GameStop’s Bitcoin Gamble Save the Flagging Franchise?

Retailer GameStop has announced a plan to acquire Bitcoin reserves. A change in direction for the company, has had a mixed response from the public and investors. We discuss it in the article below. 

Troubled franchise Gamestop is attempting to turn around its fortunes by investing heavily in Bitcoin, it was announced this week. It aims to do this by raising $1.3 billion through convertible senior notes. The markets have had varied reactions to the news. When the announcement was given that the board had unanimously approved the addition of Bitcoin as a reserve asset, stocks in the company jumped by 12%. However, by Thursday they had slid 25%.

Bitcoin Today

GameStops’ acquisition of Bitcoin is an astute move, or the speculation around doing so is. Bitcoin has had one of its most volatile 12 months, but also one of its best for long-term investors. The current Bitcoin price sits at $85,244 at the time of writing. This has followed a period of ups and downs set in motion by a range of factors, which saw it climb past the $100,000 mark in January to reach a record high.

The start of this journey came in January when the SEC approved spot ETFs for Bitcoin and later Ethereum. This was a big move, adding further institutional investment and confidence to the crypto market. It also provided a way in which traditional investors could invest in Bitcoin while hedging against its inherent volatility.

April then saw a Bitcoin halving event. This is where the reward for Bitcoin is reduced as an inflationary measure. Essentially, it reduces the supply of Bitcoin which results in a price rise. This often happens at the three and six months mark, which both occurred this year as predicted.

Adding to these at the end of the year was an incoming, crypto-friendly administration in the United States. With talk of a possible US Bitcoin Strategic Reserve, the price of Bitcoin rocketed to new highs. This was through a period of prolonged volatility as people second-guessed what would be included and if it would happen at all.

It has not all been bright for Bitcoin though. There have been plenty of macroeconomic factors, such as worries about inflation in the US and jobs data, that have prevented further growth. The looming threat of tariffs has also played heavily on its progress.

GameStop’s Change in Direction

The first inclination that GameStop was planning to buy Bitcoin came around two months ago on various news outlets. Troubled for some time, GameStop itself has had plenty of financial woes in the past. In the late 2010s, it failed to adapt as videogame sales moved online. This led to a near closure until a huge buy from retail investors on online forums such as Reddit came. In the first month of 2021, its stock was hugely volatile and the period became known as the ‘GameStop Short Squeeze’.

As a result, GameStop became what is known as a ‘Meme stock’. This is a stock that is often bought by the action of retail investors on the internet. Many are overvalued, and though GameStop was the first there have been others. These have included AMC and National Beverage.

The Use of Senior Notes to Fund Bitcoin Acquisition

Convertible Senior Notes are the primary method by which GameStop plans to fund its acquisition of Bitcoin. These are debt security options, in which a note is given which can be redeemed for an amount of predetermined shares. Those who own them can earn interest, but this accrues and is given by the company.

Generally, they are used by startups that have not yet been valued. This makes it strange that GameStop, an established company, is choosing to use them. However, it is not unknown for well-established companies to issue them and it is often a quicker way to access investor funding.

It seems that GameStop is trying to follow a similar path carved by software company MicroStrategy, now known as Strategy. In fact, the CEO of GameStop Ryan Cohen was seen with the latter company’s CEO Michael Saylor in a post on X. This company moved from software to Bitcoin acquisition and pushed its share price up 84% in the past year. It now owns 447,000 tokens in total.

The difference here, and one causing trepidation from investors, is how the approach has been done. GameStop has had multiple changes in direction over the past three years, this being one of many. With Strategy, the change seemed a natural movement.

The danger is that GameStop‘s move to Bitcoin acquisition could devalue the currency. If it is viewed as a ‘get rich quick scheme’ for ailing companies, then the writing may already be on the wall. GameStop will have to back up its plans with other long-term strategies to ensure its success and get the backing of others.