TradingKey - On May 11 (Eastern Time), GameStop announced plans to raise $1.75 billion through a private placement of convertible senior notes, sparking speculation that the company might once again be preparing to invest in Bitcoin. Following the announcement, shares plunged 11.24% in after-hours trading, further eroding investor confidence.

[GME after-hours time-sharing chart, Source: Futu]

The once-dominant video game retailer has been struggling with a long-term decline in its core business, as physical game sales continue to lose ground to digital downloads.

Rather than presenting a clear turnaround strategy, GameStop instead made headlines in May for spending $500 million to purchase Bitcoin—an attempt to replicate MicroStrategy’s controversial but high-profile playbook. However, unlike MicroStrategy, a tech firm with a software-driven revenue model, GameStop is fundamentally a retail business on the margins of relevance, and this move failed to win over long-term investors.

Wedbush analyst Michael Pachter noted that GameStop’s current valuation is already 2.4 times its cash value—far out of line with fundamentals. He set a price target of $13.50, more than 55% below current levels, and bluntly stated that the company lacks a coherent strategy, effectively relying on the “greater fool theory” to sustain its elevated valuation.

Although GameStop did not explicitly state whether the proceeds from the bond offering would be used for Bitcoin purchases, the timing and size of the fundraising have drawn significant attention. If the company does indeed double down on crypto, it will only deepen concerns about its financial motives.

CEO Ryan Cohen described the Bitcoin purchase as a hedge against macroeconomic risk, but failed to explain why a retail company should transform into a crypto vault. In reality, if investors want exposure to Bitcoin, they can simply buy the asset directly.

Currently, GameStop’s share price remains driven almost entirely by speculative sentiment. A sudden loss of confidence could trigger a rapid sell-off, sending shares into free fall. Without solid business fundamentals to support its valuation, the biggest losers will inevitably be those who hold on until the end.

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