GameStop (NYSE:GME) recently announced plans to add Bitcoin (BTC) to its corporate treasury using $1.3 billion raised through convertible bonds. The announcement, which came shortly after what many considered positive earnings results, led to a counterintuitive sharp decline in the company’s stock price. This financing approach mirrors strategies employed by other Bitcoin-focused companies and brings with it complex implications for shareholders.
GameStop’s Bitcoin Strategy: Following the MicroStrategy Playbook
Despite what some viewed as bullish news about adding Bitcoin to its balance sheet, GameStop shares dropped over 25% on Thursday, falling from nearly $30 to around $22.
GameStop is following in the footsteps of companies like MicroStrategy Incorporated (NASDAQ:MSTR) and Marathon Digital Holdings (NASDAQ:MARA), which have used similar financing strategies for their Bitcoin acquisitions. These convertible bonds offer investors a 0% yield along with the right to convert into shares in 2030, essentially functioning as low-risk, long-term equity positions with seniority over shareholders in potential bankruptcy scenarios.
While the issuance benefits GameStop by providing immediate cash without interest payments until 2030, shareholders face a $1.3 billion dilution risk. This occurs because bondholders typically hedge their positions by shorting the stock or selling short-dated calls, creating ongoing sell pressure that suppresses the share price.
The Bitcoin Price Threshold is $110,00 for Shareholders
For GameStop, MicroStrategy, and Marathon to achieve significantly higher stock prices, Bitcoin may need to reach what they call “exit velocity” – breaking above $110,000 and surpassing these companies’ average purchase prices. Only at that point might fresh demand for these stocks outpace the dilutive pressure from bondholder hedging.
MicroStrategy’s convertible notes have conversion prices ranging from $433.43 to $2,043.32 per share, while Marathon’s are around $25.91 and $34.58. Despite both companies increasing their Bitcoin holdings—MicroStrategy now holds over 506,000 BTC—their stocks have consistently traded below these levels due to hedging pressure.
A warning is issued to short-dated options buyers, noting the significant losses experienced by 3/28 call buyers during Thursday’s selloff, with most calls set to expire worthless. Until Bitcoin experiences a major breakout, analysts expect GameStop and other Bitcoin-holding public companies to likely stay range-bound.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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