GameStop Renews Bitcoin Options Deal with Coinbase, Trading Upside for Cash

Video game retailer GameStop has kept nearly all of its Bitcoin tied up in options contracts that trade away potential price gains for upfront cash, renewing the arrangement with crypto exchange Coinbase after an earlier batch expired in late May.

GameStop laid out the arrangement in a quarterly filing submitted to the Securities and Exchange Commission on Thursday, covering the three months through May 2 this year.

It’s worth noting those coins no longer count as a direct holding and now sit as a $369.6 million claim for repayment, about $58 million below their cost, while selling the options brought in $5.8 million over the period, per the filing.

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 was first to report on 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 you own something, sell someone else the right to buy it at a fixed price, and pocket a fee for your trouble. 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.

"GameStop is using covered-call contracts to generate income from its Bitcoin without selling the underlying coins," GoQuant Founder and CEO Denis Dariotis told Decrypt.

Selling the calls collects premiums that offset price weakness, he said, though it surrenders part of the upside above the strike, and the coins were pledged to Coinbase as collateral instead of held outright.

The arrangement also weakens GameStop's hold on the coins, Dariotis said, because shareholders "are exposed to the risk that GameStop may not have the same direct control over those assets," he added, noting Coinbase may be a relatively low-risk counterparty but the deal still adds a layer of risk for holders to weigh.

The strategy holds up in a falling market because the premium income keeps coming, Dariotis said, while capping gains if Bitcoin climbs well past the strike. Shareholders, he added, "are effectively accepting counterparty risk and reduced upside participation in exchange for the income."

GameStop’s Bitcoin stash

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. At that time, the deal gaveCoinbase the right to reuse, mix, or sell the coins, while accounting rules required GameStop to remove the Bitcoin from its books and record a repayment claim in its place.

But GameStop's Bitcoin stash only 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.

Notably, 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.

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 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.