Summary
- GameStop has renewed an options agreement that secures nearly all its Bitcoin with Coinbase Credit.
- The pledged Bitcoin is no longer considered a direct asset and is valued below its acquisition cost.
- This strategy contributed approximately $1 million during a quarter in which GameStop achieved record profits exceeding $390 million.
GameStop, the video game retailer, has continued to keep almost all of its Bitcoin locked in options contracts, which trade potential price appreciation for immediate cash flow. The company has renewed its arrangement with Coinbase following the expiration of a previous set of contracts in late May.
In a quarterly filing made to the Securities and Exchange Commission on Thursday, GameStop detailed this arrangement, which covers the three months ending May 2 of this year.
It is important to highlight that these coins are no longer classified as direct holdings and now represent a $369.6 million repayment claim, which is roughly $58 million less than their original cost. The sale of these options generated $5.8 million during the quarter, according to the filing.
The strike price for the renewed contracts has decreased to $80,000, down from a previous range of $105,000 to $110,000, which positions the coins nearer to the threshold at which Coinbase could seize them, as reported by Protos, the first to disclose the terms of the renewal. The options linked to the earlier strike prices expired worthless on May 29, prompting GameStop to re-pledge the Bitcoin under identical conditions.
A covered call involves owning an asset, selling the right for someone else to purchase it at a predetermined price, and receiving a fee for doing so. If the asset's value surpasses this price, the buyer can acquire it, resulting in the seller keeping the fee but foregoing any further profit potential.
GameStop's Bitcoin Holdings
GameStop began acquiring Bitcoin in March of last year, taking on $1.5 billion in debt to invest in the cryptocurrency. By holding Bitcoin in its reserves rather than cash or bonds, the company effectively bets on the cryptocurrency's price increase, transforming its balance sheet into a speculative investment.
Earlier in March, GameStop shifted nearly all of its 4,710 BTC into this options strategy following the initial disclosure in its annual report. This arrangement allowed Coinbase to reuse, mix, or sell the coins, while accounting regulations necessitated that GameStop remove the Bitcoin from its financial statements and record a repayment claim instead.
However, GameStop's Bitcoin holdings only contributed about $1 million to its earnings during the quarter, categorized as a gain on digital assets, amidst a record net income of approximately $390 million.
It is noteworthy that a significant portion of this profit stemmed from interest accrued on its cash reserves and a paper gain from its eBay options position, with retail operations contributing a lesser amount, according to GameStop's filing.
As of the end of the quarter on May 2, Bitcoin was trading near the $80,000 strike price, which enhanced the value of the contracts as the buyer's right to claim the coins approached. Bitcoin remained below this level until May 29, leaving the options unexercised and allowing GameStop to retain the premium received from the sale.
As of Friday morning, Bitcoin was trading around $63,900, according to CoinGecko data, representing a decline of about 34% from its peak this year and approximately $43,000 less than the average price GameStop paid, as spot Bitcoin exchange-traded funds lost $2.1 billion in June alone.
Decrypt has reached out to GameStop for a response and will update this article if a reply is received.