GameStop, the once-embattled video game retailer that became a meme stock sensation several years ago, is making waves in the cryptocurrency world with its recent purchase of 4,710 Bitcoins between May 3 and June 10 for over $500 million. This bold move has raised questions about the company's future and its potential impact on its struggling stock. While the acquisition of Bitcoin may seem like a forward-thinking and innovative step for GameStop, it's important to note that this is still early in the company's new strategy. The extent of GameStop's commitment to Bitcoin remains unclear, and it will take time for the cryptocurrency to represent a meaningful portion of the stock's value. Currently, GameStop's 4,710 BTC has a market value of approximately $500 million, which makes it roughly 5% of the stock's $10 billion market cap. The company will have to acquire much more Bitcoin to represent a sizable portion of its assets. Investors should also be wary of comparing GameStop to companies like MicroStrategy (NASDAQ: MSTR), which has built its entire company around Bitcoin. While MicroStrategy's share price has been impressive, it trades at a massive premium to the market value of its Bitcoin holdings. This is a potential concern if MicroStrategy can't justify such a premium by using its Bitcoin to create additional business value. Otherwise, there's no reason that it wouldn't trade at par with its market value instead. Moreover, both GameStop and MicroStrategy are leveraging their shareholders and balance sheets to raise the funds to buy all this Bitcoin. While this is fine as long as Bitcoin's price continues to rise, serious problems could arise if Bitcoin prices fall and remain low for a while. If things are bad enough, these companies could convert their bonds into stock, saving the company but at the expense of the shareholders, causing immense dilution. GameStop's retail business is also in continued decline as consumers increasingly opt for digital game copies and subscription services like Microsoft's Game Pass. The company is consolidating its business to cut costs and has adopted collectible merchandise and trading cards to attract traffic. However, U.S. sales still declined by 12.9% in Q1 2025 from the prior year. In conclusion, while buying Bitcoin makes for an interesting headline, until GameStop leans further into it or something else shows what the company's long-term path is, there's still no reason to get excited about the stock. This move dials up the risk in a stock that was already a speculative investment. Investors should view MicroStrategy's success as the exception, not the rule, and be cautious about investing in GameStop at this time.
