Video game retailer GameStop renewed Bitcoin-backed options contracts with crypto exchange Coinbase after an earlier batch expired in late May, according to a quarterly filing submitted to the Securities and Exchange Commission on Thursday covering the three months through May 2. The arrangement ties up nearly all of GameStop's 4,710 Bitcoin in covered call contracts that trade potential price gains for upfront cash payments. GameStop pledged the coins as a $369.6 million claim for repayment, about $58 million below their cost, while the options strategy generated $5.8 million in premiums during the quarter when the company posted record net income of over $390 million.
Coinbase Credit Deal Lowers Strike Price to $80,000
The strike price on the rolled contracts fell to $80,000 from a range of $105,000 to $110,000, putting the coins closer to the level at which Coinbase could claim them, according to Protos, which first reported the renewal terms. Options tied to the earlier strikes expired worthless May 29, and GameStop re-pledged the Bitcoin under the same terms.
A covered call is a deal where a company owns an asset, sells someone else the right to buy it at a fixed price, and pockets a fee for the arrangement. The fixed price is the strike, and if the asset climbs past it, the buyer can take it, so the seller keeps the fee but loses the upside.
The pledged coins no longer count as a direct holding under accounting rules. GameStop removed the Bitcoin from its books and recorded a repayment claim in its place. The deal gives Coinbase the right to reuse, mix, or sell the coins.
By the close of the quarter on May 2, Bitcoin was trading near the $80,000 strike, which raised the value of the contracts as the buyer's right to claim the coins moved closer. Bitcoin stayed below that level through May 29, and the options went unexercised, leaving GameStop with the premium.
Bitcoin Strategy Contributed $1 Million to Record $390 Million Profit
GameStop's Bitcoin stash contributed roughly $1 million to earnings for the quarter, listed as a gain on digital assets, over a period when the company posted a record net income of about $390 million. Most of that profit traced to interest earned on its cash pile and a paper gain on its eBay options position, with its retail business making up a smaller share, per GameStop's filing.
Bitcoin traded near $63,900 Friday morning, per CoinGecko data, down about 34% from the year's high and roughly $43,000 below the average price GameStop paid, as spot Bitcoin exchange-traded funds shed $2.1 billion through June.
GameStop Built Bitcoin Position Starting March Last Year
GameStop began building its Bitcoin position in March last year, borrowing $1.5 billion to load up on the coin. A Bitcoin treasury is formed when a company keeps part of its cash reserves in Bitcoin rather than in dollars or bonds, betting that the price would climb, effectively turning its balance sheet into a bet on the cryptocurrency.
Earlier in March, GameStop moved all but one of its 4,710 BTC into the strategy after its annual report first disclosed the pledge.
FAQ
What did GameStop disclose in its SEC filing on Thursday?
GameStop disclosed in a quarterly filing submitted to the Securities and Exchange Commission on Thursday that it renewed Bitcoin-backed options contracts with Coinbase after an earlier batch expired in late May. The filing covered the three months through May 2 and showed the company pledged nearly all of its 4,710 Bitcoin as a $369.6 million claim for repayment, about $58 million below their cost.
How much did GameStop's Bitcoin strategy contribute to its quarterly earnings?
GameStop's Bitcoin stash contributed roughly $1 million to earnings for the quarter, listed as a gain on digital assets. This occurred during a period when the company posted a record net income of about $390 million, with most of that profit tracing to interest earned on its cash pile and a paper gain on its eBay options position.
What are the terms of GameStop's renewed options deal with Coinbase?
The strike price on the rolled contracts fell to $80,000 from a range of $105,000 to $110,000. Options tied to the earlier strikes expired worthless May 29, and GameStop re-pledged the Bitcoin under the same terms. The deal gives Coinbase the right to reuse, mix, or sell the coins, while GameStop received $5.8 million in premiums over the period.
