Why is GME stock down today? GameStop is betting $500 million on bitcoin, but investors aren’t buying it

Question

GameStop is taking its promised bitcoin investment seriously—$500-million-worth-of-bitcoin serious, in fact. The video game retailer (which has also become a meme stock) announced the purchase of 4,710 bitcoin, the oldest and largest cryptocurrency, on Wednesday.

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The company first announced that it had set its sights on cryptocurrency in early March, Fast Company reported, following the GameStop board’s unanimous decision to add bitcoin as a treasury reserve asset, allowing the company to invest its corporate cash, future debt, and equity issuances on digital tokens.

Valued at $108,493 per bitcoin at the time of writing, today’s announced investment amounts to around $511 million. As of February of this year, the company held around $4.8 billion in cash, and said in a regulatory filing that it has not set a ceiling for accumulated bitcoin.

While the news had an initial positive response in premarket trading, the stock sank as much as 4% (at the time of writing), trading at $30.9 in comparison to the prior day’s closing at $35.

Fast Company reached out to GameStop but did not receive a comment at the time of publishing.

The bitcoin purchase marks the next step for CEO Ryan Cohen’s plan to improve the company’s profitability. Cost-cutting efforts included closing 590 brick-and-mortar locations last fiscal year. While this year’s fourth-quarter net sales fell to $1.2 billion compared to the prior year’s $1.7 billion, the retailer saw an increase in net income, rising to $131.3 million compared to $63.1 million the year before.

The company’s direction has been relatively effective, with stock up around 8% this year, and a current market valuation of $14.2 billion. Following an uptick in stock price in March—due in part to the initial investment policy announcement—GameStop has seen a steady rise despite a decline in early May.

The expansion of the company’s portfolio investment toward cryptocurrency follows in the footsteps of software company Strategy (formerlyMicroStrategy), which is the largest corporate holder of bitcoin following years of investments.

The decision to turn to digital tokens also follows President Trump’s focus on cryptocurrency, with his administration establishing the Strategic Bitcoin Reserve, and the president launching his eponymous token and hosting a private dinner with holders.

This post originally appeared at fastcompany.com
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