By doing so, the 4,709 BTC stash—worth about $315 million as of this writing—has become a receivable rather than an intangible asset on the company's balance sheet. The reclassification matters, because it'll change how Bitcoin gains and losses flow through GameStop's quarterly earnings.
The heightened volatility has put companies with BTC on their balance sheets under strain. GameStop, which originally spent more than $500 million buying its BTC last May, has seen the value of its holdings drop substantially in recent months.
GameStop noted in its report that the terms of the collateral agreement mean that Coinbase Prime has the right to "rehypothecate, commingle, or unilaterally sell" the retailer's Bitcoin.
That means GameStop didn't sell its Bitcoin—but it could be sold.
In a covered call strategy, an investor who holds an asset—in this case, Bitcoin—sells a call option to a counterparty. The option gives the counterparty the right to buy the asset at a predetermined price, called the strike price, within a set timeframe. In exchange, the holder receives a premium upfront, generating income on an asset that would otherwise just sit on a balance sheet.
If Bitcoin's price rises above the strike price, then the counterparty can exercise the option and acquire the Bitcoin at the lower agreed-upon price, capping the holder's upside. If Bitcoin stays below the strike price, then the option expires worthless and GameStop keeps the premium—plus its Bitcoin.
By pledging nearly all of its BTC as collateral for the strategy through Coinbase Prime, GameStop is essentially betting that Bitcoin won't rally sharply enough to trigger the options—collecting yield in the interim.
But there have been recent questions about the company's BTC conviction.
