GameStop's diving headfirst into Bitcoin, amassing a cool 4,710 BTC – about $513 million worth – in Q1, and backing it up with a $1.75 billion convertible note offering. Now, all of a sudden, they’re the 13th largest corporate Bitcoin holder. And they're not alone. We’re likely just on the cusp of institutional money flooding into crypto, at least as much as $50 billion in Q1 so far according to some reports. Is this mood indicative of the times? It’d be great if it were a smart bet on the future of finance, but it’s actually just a huge, irresponsible wager with shareholder capital.
Just as one example, I recall a conversation with a kid, no more than 28 who worked the GameStop counter last Christmas. He was working his ass off, recovering from the holiday rush, hoping to one day pay off his student loans. He was the type of employee that causes you to want to cheer for GameStop. Fast forward to today, and I’d love to know what he thinks about his employer’s plan to sink half a billion dollars into Bitcoin. Will this open up new doors for him to pursue? Or perhaps it leads to job cuts in case the tide goes out.
Shareholders' Trust: Sacred or Sacrificed?
Unfortunately, the central obligation of any corporate treasurer is to protect shareholder value. For ordinary Americans, investing in Bitcoin is the ultimate betrayal of trust. This is particularly true when taking into account its volatility, in spite of all the institutional hype around it. It's not like GameStop is swimming in cash; they're undergoing a transformation. How does shoveling billions of dollars at a speculative purchase really serve the long-term interests of the company’s shareholders? That’s a good question to ask around here.
Think about it. You’ve put concrete dollars into your retirement account, your child’s education fund, and maybe a handful of shares you have acquired with expectations of a rebound. That money is then put into the company’s hands to develop and prosper. And now, a big chunk of that is being left to fend on the [un]predictable tides of the crypto market. Are we okay with that?
We need to consider the ethical implications. If Bitcoin crashes, erasing most of GameStop’s investment, the reputational hit would be catastrophic. It's not just about the money lost; it's about the message it sends: that short-term gains are prioritized over responsible stewardship.
Bitcoin's Promise: Mirage or Oasis?
Okay, let's play devil's advocate. Bitcoin could be a smart move. His main argument for buying it, he says, is that it’s a good hedge against inflation. More importantly, it diversifies their balance sheet and signals to investors that GameStop is a forward-looking company. Just ask Strategy (formerly MicroStrategy) – they’ve created a Bitcoin-based fortune! They’re the poster child for this strategy, sitting on a mountain of Bitcoin worth tens of billions.
Strategy's business model is Bitcoin. GameStop sells video games. Are these really comparable situations?
The reality is that the gains to be had with Bitcoin are dwarfed by the existential threats. Volatility is the elephant in the room. Regulatory uncertainty is another. Then there are the complications of custody, security and accounting. The current accounting rules require companies to book unrealized losses. Yet, unlike other investors, they cannot realize these gains until they sell forcing a dramatically imbalanced risk profile. Heads, they just scrape by; tails, the shareholders take a bath.
More Than Profits: Employees and Community
What about the human cost? Imagine if that half a billion dollars had been invested in employee training instead! Or, as an alternative, it could have provided better customer service or paid for community outreach programs. Or could it have been stridently re-purposed to ensure their long-term financial wellbeing. We are talking about real people here!
Once again I can’t help but think of that young man in that GameStop store. He wasn’t just bragging about how wealthy he’s going to get if GameStop chooses the correct path forward. He was sharing with us all of his hopes and aspirations!
Consider for a moment the message it sends to employees when an employer cares more about speculative investment than the welfare of their employees. It creates a breeding ground of resentment, undercuts trust and eventually poisons the entire culture of the company.
Ultimately, GameStop's Bitcoin bet highlights a critical question: What is the purpose of a corporation? If so, is the goal to maximize profits for shareholders above all other stakeholders? Or isn’t the corporation equally responsible to its employees, customers and the community?
Long before another company adopts a Bitcoin strategy, boards of directors and treasury departments must consider some difficult questions. Smart strategy or hare-brained bet? Is it consistent with our corporate values and risk appetite? And perhaps most importantly, what will it mean for our stakeholders? The answers might surprise you.
