After Tesla, MicroStrategy and Square

Von | 1. März 2021

After Tesla, MicroStrategy and Square: Will Gamestop (GME) be the next to buy Bitcoin?

Just as shares of GameStop Corp. (NYSE: GME) exploded upward on Wednesday, U.S. host Jim Cramer advised the video game retailer’s board to buy Bitcoin to further boost share prices.

„One last time GME,“ the CNBC „Mad Money“ host tweeted. „Spend a billion dollars in stocks, buy a billion in bitcoin, and watch your shares go to $430.“

Previously, other Wall Street firms had opted to replace some of their cash reserves with the benchmark cryptocurrency.

On Wednesday, Nasdaq-listed MicroStrategy revealed it had bought an additional $1.06 billion worth of bitcoin to its more than 70,000 BTC reserves. Meanwhile, Bitcoin Storm payments company Square also announced that it added $170 million to its $50 million BTC on the same day.

Tesla, a Fortune 500 company, also invested $1.5 billion in Bitcoin to protect its reserves from the risks of a depreciating US dollar. The US carmaker went a step further and announced that it too would start accepting the cryptocurrency for its services and products.

Why buy Bitcoin?

Since the beginning of the coronavirus pandemic, the economic cycle came to a standstill. The US government and its central bank, the Federal Reserve, responded by injecting additional US dollar liquidity into the markets through the banks (also known as quantitative easing), making credit affordable (lowering interest rates close to zero) and providing direct aid to people (via stimulus).

The US dollar index, which measures the greenback against a basket of foreign currencies, fell more than 12 per cent due to oversupply.

Many companies were sitting on huge piles of cash reserves. They didn’t want their dollars devalued by inflation.

That led them to Bitcoin, an emerging hedging asset that promises to hold its value against the devaluation of fiat. That was the main reason MicroStrategy, Tesla, Square and many other companies decided to buy the cryptocurrency.

Bitcoin surged more than 1,200 per cent from its mid-March low to $3,858 after the Federal Reserve pledged to provide unlimited quantitative easing. MicroStrategy’s investment in the cryptocurrency has so far returned double its initial stake.

Tesla is also sitting on a $1 billion windfall thanks to Bitcoin’s parabolic uptrend.
But…

… Mr Cramer suggested Bitcoin as a financial asset that could also hedge the so-called pandemic losers. His advice to the GameStop board to buy Bitcoin had more to do with generating enough capital to fund its future operations – especially as it neared bankruptcy last month.

GME shares are currently in the midst of volatile price swings. On Wednesday, the stock was up 104 per cent. TraderAlert data shows that GME options activity also rose to its highest level in a fortnight, with bullish contracts outpacing bearish ones.

The rise happened almost without a specific catalyst.