GameStop's Bitcoin Plan Sparks 22% Stock Plunge, $3 Billion Loss

GameStop, the video game retailer that gained significant attention during the 2021 meme stock frenzy, has once again captured the market's focus with its recent announcement of plans to acquire Bitcoin. This strategic move has sparked a dramatic market reaction, including a significant decline in the company's stock price and intervention from the New York Stock Exchange.

On March 27, GameStop's short sales volume surged to 30.85 million shares, marking a 234% increase in just 24 hours. This level of short selling activity is approaching the 33.26 million shares seen during the historic January 2021 short squeeze that captivated financial markets. The New York Stock Exchange responded by imposing a Short Sale Restriction (SSR) on GameStop stock. This trading restriction automatically activates when a stock drops more than 10% from the previous day’s closing price and remains in effect for the rest of that trading day and the following day.

GameStop shares plunged 22% during the trading session, completely erasing the 12% gain the stock had experienced following its Bitcoin announcement. At the time of the reports, GME was trading at $22.09, its lowest level since October. The selloff resulted in an estimated $3 billion loss in market capitalization in a single day. This sharp decline reflects deep investor skepticism about the company’s new strategic direction.

GameStop did not specify exactly how much Bitcoin it plans to purchase. However, after markets closed on March 26, the company announced a $1.3 billion convertible notes offering, with proceeds intended for “general corporate purposes, including acquiring Bitcoin.” Convertible notes are a form of debt that can later be converted into equity. Some analysts believe the announcement of this debt offering contributed to the stock’s decline, as it could potentially dilute existing shareholders’ stakes.

Market experts have expressed doubts about GameStop’s Bitcoin strategy. Some analysts have compared GameStop’s decision to buy Bitcoin to companies that added “.com” to their names during the internet bubble to attract investor interest without clear strategic justification. Others have called into question the long-term viability of the Bitcoin pivot, noting that investors are not necessarily optimistic about the underlying business of GameStop.

The current short selling volume, while high, still falls short of the all-time record set on June 3, 2024, when it reached 46.20 million shares. That spike coincided with the return of a stock trader known for his role in the 2021 GameStop short squeeze, who revealed he had resumed trading GameStop stock with a significant investment.

From a technical analysis perspective, GameStop’s 22% intraday decline on huge volume indicates strong selling pressure and confirms a bearish trend. While the SSR might provide some temporary relief from additional immediate short selling pressure, the stock remains under pressure. Key support levels to watch include the $20 mark, while any rebound attempts would likely face resistance in the $25-$27 range, which represents previous support levels that may now act as resistance.

The dramatic market response to GameStop’s Bitcoin plans highlights the uncertainty investors feel about this strategic shift. Critics are questioning its long-term viability, and the steep drop in market capitalization reflects the market’s pessimistic outlook. GameStop now faces the challenge of convincing investors that its Bitcoin strategy is a sound decision that will ultimately benefit the company and its shareholders. The market will be closely watching how this story develops in the coming days and weeks.