GameStop Buys Bitcoin: Smart Strategy or Big Mistake?

Key Points

• GameStop announced the first of what will likely be numerous purchases of Bitcoin digital currency.
• The move can pay off for investors over time, but the risks are significant, and the rewards may not be realized quickly. 
• Market headwinds suggest volatility will remain high and that price action is capped for 2025. 

As dubious as it may seem, GameStop’s NYSE: GME shift to Bitcoin (CRYPTOCURRENCY: BTC) could pay off over time. Evidently, the gaming resale industry is dead money; investing in BTC provides a path forward, but it will be a long road to travel.

The most recent news is that the company made its first purchases, about 4,700 Bitcoins for $512.6 million. 

At this pace, assuming the price of Bitcoin remains stable and the core business profitable, the company can amass roughly 43,730 BTC before it will need to seek additional funding. 

The question is whether its cash hoard and core business can sustain the operating long enough for it to profit from the move, and the answer is maybe. It depends on several factors, including the price of Bitcoin, its adoption rate, and demand.

The first purchases come with a price near $105,000, which is near the all-time high, and higher prices may not be forthcoming soon.

Bitcoin appears to be topping out and may struggle to set additional highs this year, a critical factor because there are few other ways to make money from Bitcoin other than selling it for a higher price. 

Dilution is A Serious Risk for GameStop Investors

Among the critical takeaways for investors in late Q2 2025 is the risk of dilution. GameStop raised its capital through share sales, which increased its share count by nearly 30% in 2024.

If the company continues on this path, it will likely lead to additional dilution and rising debt, as has been the case with Strategy NASDAQ: MSTR, formerly known as MicroStrategy.

The other option is to slowly liquidate the core business and convert the funds to BTC, but that will only get them so far. In addition to its cash, the primary tangible asset is inventory (of old technology), which was valued at only $480 million at the end of the last fiscal quarter. 

MicroStrategy’s share count has more than doubled since 2021, and the debt continues to grow, up nearly 200% in the same time.

MicroStrategy’s shareholder equity is improving due to its strategy, but shareholders can claim an ever-declining amount, and there is an increasingly complicated capital structure to account for.

MSTR’s FQ1 release highlights include an authorization for an increased share count, plans for another share sale, and the appearance of 8% and 10% series A preferred stock on the balance sheet. 

Mixed Signals From the Sell-Side Will Keep GME Volatility High

The sell-side data shows mixed signals that will likely keep GameStop's volatility elevated in 2025. MarketBeat still tracks only one analyst, Wedbush, with a rating, and it is a Sell. The team adjusted its price target in March, expecting a nearly 50% downside to late May price points, and is unlikely to alter its forecast because of the BTC purchases.

Other negative signals include the short interest, which was elevated at the end of April, having risen for three consecutive months to a 12-month high of 11%. 11% isn’t astronomically high, but it is a headwind to the market that can cap gains without bullish catalysts.

The positive signal is from the institutions. The institutions own only 30% of the stock and aren’t buying robustly, but the pace of their activity is elevated and net-bullish, proving some market support in 2025. Their interest appears to be speculative, centered on the cash buildup last year, and hints at a BTC investment. 

The price action in GME stock following the announcement is as mixed as the sell-side signals. The market moved higher on the news in premarket trading, gapped up at the open, but reversed course and sold off by more than 10% by lunch. The move suggests significant resistance to higher prices, increased short interest, and a confirmed reduction of the top of the existing trading range.

Buyers beware.