GameStop Shares Plunge

Shares of GameStop (GME), the struggling video game retailer turned meme stock icon, plummeted 25% on Thursday, erasing recent gains linked to its bitcoin (BTC) treasury reserve announcement.

GME fell to just above $21, its lowest price since October, and down over 28% from a peak of nearly $30 on Wednesday.

The decline followed the company’s announcement of a $1.3 billion, 0% convertible note offering intended to fund its BTC acquisition plans. Initial excitement from the crypto community faded as investors reassessed the financing details.

Louis Liu, chief investment officer of Mimesis Capital, noted that many existing shareholders were against this move, resulting in high trading volumes. The sell-off might also relate to convertible bond pricing, as potential bond buyers could be shorting GME shares. James Van Straten, a senior analyst at CoinDesk, compared GME’s situation to that of other companies like MicroStrategy (MSTR) and Semler Scientific (SMLR), whose shares also dipped during their financing periods.

Wedbush analyst Michael Pachter highlighted concerns regarding the sustainability of GameStop’s stock price, pointing out that convertible bond investors will have to trust the longevity of the GameStop meme phenomenon. Pachter emphasized that GME trades at more than twice its cash holdings, contrasting with MSTR, which trades at less than double its bitcoin value.

Pachter expressed skepticism that the offering will be well-received, questioning why anyone would value GameStop’s potential BTC investments above 2x its cash value when investors could directly purchase BTC or a BTC ETF.

The trend of allocating reserves to bitcoin began with MicroStrategy, led by Michael Saylor, who has advocated for more companies to follow suit. However, not everyone is convinced this is a sound investment strategy.

Peter Schiff, a prominent bitcoin critic, argued against companies investing in bitcoin, stating that GameStop’s stock drop reflects a lack of sustainable long-term business strategy. He remarked on the fleeting nature of the recent gains and cautioned against relying on such speculative investments.