American video game retailer GameStop announced investments in cryptocurrencies earlier this year, which led to a 20% rise in the price of its shares. Later, the company confirmed that it would spend $1.3 billion on general corporate needs, including the purchase of bitcoins. On May 28, GameStop announced that it had purchased 4,710 BTC for $500 million. However, shares with the GME ticker reacted by falling by 10% (although they had risen by 24.8% over the previous three days).
On Tuesday Trump Media & Technology Group (DJT) unveils plans to raise $2.5 billion to create the largest bitcoin hoard among public companies. Trump Media shares also fell by 10% after the announcement.
There are several reasons for the drop in GameStop shares. First, the acquisition was made using part of the proceeds from a $1.3 billion convertible bond issue. This is a significant deviation from the traditional retail business strategy. The market is once again volatile, which has caused investors to worry.
Moreover, simultaneously with the announcement of the purchase of bitcoin, its price fell by about 1.5%, which increased fears.
In addition, some analysts believe that GameStop is trying to emulate the strategy of Strategy, which is actively investing in bitcoin. However, given GameStop’s current financial performance, such as a 28% year-on-year drop in revenue, investors doubt the feasibility of such a strategy.
In conclusion, the $1.3 billion convertible bond issue could lead to dilution of shareholder capital in the future, which also plays against GameStop’s crypto investment strategy.
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