GameStop’s official announcement that it will start investing in Bitcoin has gone down like a lead balloon.
For months now, there’s been feverish speculation that the troubled video game retailer was planning to hold this cryptocurrency as a reserve asset.
GME’s share price spiked when the company’s CEO, Ryan Cohen, posted chummy pictures of him grinning alongside Michael Saylor earlier this year.
Given Wall Street had initially been receptive to these rumors, you might be wondering why the stock tanked 25% in intraday trading once the plans were actually confirmed.
Well, the sell-offs are linked to several factors — not least the actual details of what GameStop intends to do.
Ripping a page out of Strategy’s playbook, GameStop revealed on Thursday that it plans to raise $1.3 billion in order to start amassing BTC.
But critics argue that it makes little sense for investors to snap up this debt. After all, they could just decide to buy this Bitcoin for themselves — or gain exposure through an exchange-traded fund.
There’s also been a fair bit of frustration at the timing of this announcement. Bitcoin has been languishing below $90,000 for most of March, and it’s likely investor sentiment would have been much more upbeat if the crypto markets were showing bullish momentum.
And here’s the cherry on the top: GameStop has also disclosed that it will be shutting down a “significant number” of its stores — building upon a substantial number of closures in recent years.
At one point, there were approximately 6,000 GameStop outlets around the world, but this figure has almost halved over the past decade. You could argue this was somewhat inevitable given so many enthusiasts now download titles directly from online stores set up by the likes of Nintendo.
The quick succession of these announcements almost seems like GameStop is now intent on turning its back on its core business so it can become a vehicle for digital assets.
There’s one more element to throw into the mix here: the number of traders shorting GME stock has risen dramatically, so much so that the New York Stock Exchange has had to activate temporary restrictions.
You’ll remember this is significant because of what happened back in January 2021, when the Reddit group WallStreetBets triggered a short squeeze and caused hedge funds to lose eye-watering amounts of money. GameStop was effectively turned into a “meme stock,” and it’s struggled to shake off this reputation since.
Gold bug and crypto skeptic Peter Schiff has been struggling to contain his enthusiasm as he watched GameStop’s stock, writing on X:
“Smarter investors are selling as they realize that wasting cash buying Bitcoin is not a viable long-term business model.”
He went on to argue that, from a trader’s perspective, “gambling on companies buying Bitcoin is not a good investment strategy.”
It could be argued that there’s merit in this statement. Companies with high exposure to BTC — like Strategy and Coinbase — often experience outsized moves whenever the crypto markets suffer a downturn. Take Friday, for example. Bitcoin had fallen by 3.8% in a 24-hour period, while MSTR was down 10%.
GameStop won’t be going anywhere soon. Despite the dire state of its core business, it has a significant cash pile worth more than $4 billion — amassed by offering new stock and diluting the value of existing shares.
But it remains in the throes of a serious identity crisis. Almost 90% of console games are now downloaded rather than bought in-store, leaving it heavily reliant on hardware and accessories. Previous attempts to modernize, such as a foray into NFTs, have also fallen well short of the mark. Continual shifts in strategy (investing in Bitcoin being the latest) mean investors and analysts are left scratching their heads on GameStop’s future direction.
You have to wonder whether GameStop has lost sight of the reason why it became a publicly listed company. The 15-year-old buying their own video game for the first time after saving every cent from the money on their paper round. The devoted players queuing in the cold at midnight to get their hands on a shiny new console that’s been years in the making. The clueless parents looking for a little advice on a game their kids will love.
All of these customers still exist, but Bitcoin doesn’t serve any of them. GameStop’s shift might be a step forward when it comes to crypto adoption, but it shows the company no longer focuses on the people it’s meant to serve.
The post Why GameStop’s Bitcoin Announcement is Backfiring appeared first on Cryptonews.
