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I am reminded this morning of a popular scheme that occurred with some regularity during the bubble of the late ‘90s.A random company – Diana Shipping comes to mind, but there were many others – would goose its stock price by announcing plans for a website or some other sort of internet intentions. GameStop’s (GME) announcement of plans to use bitcoin as a reserve asset on its balance sheet seems like this decade’s version of that motif. As during the ‘90s, this type of news was greeted warmly by eager speculators.

GME’s bitcoin plans came as part of yesterday’s quarterly earnings call. The results were mixed, though generally positive. Revenues fell short of estimates ($1.283bn vs. $1.48 exp), but adjusted EPS beat handily ($0.30 vs. $0.08 exp).The company ended the quarter with $4.78bn in cash and marketable securities, which generated $220mm in interest income. Presumably the move into non-interest-bearing bitcoin would impede that income, though there are analysts who are unconcerned about that prospect.Besides, interest income isn’t sexy – bitcoin is.

But one must wonder about the timing. It appears that GME is trying the MicroStrategy (MSTR) on a belated basis. MSTR’s move toward becoming a bitcoin holding company has been a phenomenal one for that company’s shareholders. Quite frankly, I’m surprised that it hadn’t already spawned more imitators. Because MSTR trades at a substantial premium to book value (about 4X) which at this point is largely the value of its crypto holdings, it can issue stock and convertible debt at favorable levels and use the proceeds to continue buying more bitcoin. As long as investors are willing to pay this premium, the company can continue this activity.

GME positioned to attempt something similar, though one might ask, “what took them so long?” Although GME’s valuation is far from its meme-craze peak, it too trades at a significant premium (about 2.5X) to its book value.Taken alongside the fact that the company is actively shrinking its base of stores – it expects to close a “significant number” after already closing hundreds in recent years – they need to do something with their cash hoard. If it worked for MSTR, why shouldn’t it work for GME?

Besides, GME needs to do something to keep the faithful engaged and in the fold.Any normal company that is actively shrinking while reporting a significant revenue miss would be clobbered by investors.Instead, by pivoting the focus to a potentially exciting new strategy, one that has no obvious link to the company’s existing business model, the stock can once again keep the excitement alive. 

Yet there is one “tell” that seems concerning. The announcement of a new, potentially significant source of demand should have caused a bump in the price of bitcoin.Instead, that market yawned.Indeed, when we consider that bitcoin broadly follows risk-on sentiment in tech stocks, and that the Nasdaq 100 (NDX) is trading about 1.5% lower at midday, the ½% drop in the cryptocurrency means isn’t doing badly. But there doesn’t seem to be much excitement either. GME’s 14% jump means that its fans like the news much more than those of bitcoin.

Oscar Wilde famously said,

There is only one thing in life worse than being talked about, and that is not being talked about[i]

The same applies to meme stocks. Without occasional catalysts, a stock like GME becomes both overvalued and boring. When those catalysts arrive, the stock becomes relevant again – at least for a while.

[i] Monty Python’s sketch first brought that quote to my attention, hilariously

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