GameStop plummeted by 19% on Bitcoin buy plan

GameStop shares got destroyed Thursday after the company said it wants to raise $1.75 billion through a convertible note sale, triggering a massive selloff.

The money, according to GameStop, will be used for “general corporate purposes,” but also for crypto buys—more specifically, Bitcoin.

Right after the news dropped, GameStop plunged over 15% in premarket trading and then 4% more after the Bell, making it a 19% drop at press time. This came just a day after the stock already dropped 5% due to falling sales. Investors didn’t like the idea of a meme stock that just lost revenue throwing itself even deeper into Bitcoin.

GameStop follows MicroStrategy’s Bitcoin strategy with debt sale

The company wants to copy the MicroStrategy playbook. That’s the software firm now called Strategy, which bought billions of dollars in Bitcoin and used different securities, including convertible debt, to pay for it. The result? Strategy became the biggest corporate Bitcoin holder and its stock went wild—sometimes up, sometimes down. Now GameStop wants the same kind of “magic,” except it’s already sinking.

In April, GameStop added 4,710 bitcoins to its books. That haul was worth more than $500 million at the time. This week’s bond deal could send that number way higher. CEO Ryan Cohen said the decision came from macro concerns. He said Bitcoin’s fixed supply and decentralized nature makes it a hedge against “certain risks.” Sounds a lot like what Michael Saylor once said, but this time the market didn’t bite.

Analysts aren’t buying the vision either. Michael Pachter from Wedbush doubled down on his “underperform” rating. He said the stock already trades at 2.4 times its cash, and that the Bitcoin pivot doesn’t make sense.

In his words, GameStop is still leaning on “greater fools” who think the price will just keep going up. He said, “they’re converting more cash to crypto, expecting to get an even bigger premium—it won’t happen.”

GameStop is already under pressure from dropping revenue. Its Q1 2024 sales fell 17% year-over-year, coming in at $732.4 million. Online gaming is gaining momentum, and that’s killing traffic at the company’s physical stores. This weakness in the core business makes the risky crypto bet look even worse.

NFT failure, regulatory exits, and herd behavior drive skepticism

GameStop already tried playing in the crypto world once, and it didn’t end well. Back in May 2021, it announced plans to build a NFT marketplace tied to Ethereum. Business Insider called it an “ambitious plan to become the Amazon of gaming.” That didn’t happen.

The beta version of the NFT platform went live in July 2022, with a curated marketplace that vetted creators. But things went sideways fast. One artist minted an NFT based on “The Falling Man” photo from 9/11, and GameStop banned the account.

Another user uploaded hundreds of HTML5 game NFTs without owning the rights. GameStop took them down, killed the minting ability, and cleaned the listings—but the NFTs still live on the blockchain.

By December 2022, the company laid off most of the NFT team. In August 2023, it said it would shut down its crypto and NFT wallet, blaming “regulatory uncertainty.”

Then in January 2024, GameStop announced its NFT marketplace would close for good on February 2, 2024. So not only is the company diving deeper into Bitcoin, it’s doing so right after completely exiting the NFT space it hyped up just two years ago.

Crypto veterans watching this play know the cycle. First there’s hype, then FOMO kicks in, and then retail investors get wrecked. Economics professor Burton Malkiel described it perfectly in his book A Random Walk Down Wall Street: people get drawn into rising assets—even if they make no sense—because they hear stories of early winners. And then they don’t want to miss out. Herd mentality kicks in, and boom—bubble.

Even with the $1.75 billion in new convertible debt coming in, investors have doubts. The idea of issuing debt just to buy more volatile assets like Bitcoin, when your own business is already bleeding, isn’t getting much love from Wall Street. They’ve already seen this play out with other firms, and it didn’t always end well.

This entire week was a gut-punch for GameStop. On Tuesday, revenue miss. On Wednesday, 5% drop. And by Thursday morning, another 15% wiped off after announcing the bond sale and Bitcoin plans. The market has clearly voted, and the vote is a big fat no.

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