GameStop converted its $368 million bitcoin reserve into an income strategy through options trading.

The video retailer ignited speculation regarding the sale of bitcoin after it transferred almost all of its coins to Coinbase Prime in January.

GameStop (Michael M. Santiago/Getty Images)

Key points:

• GameStop revealed that almost all of its 4,710 bitcoin have been pledged to Coinbase as collateral for a covered-call options strategy, instead of being sold.
• The company executed short-dated call options with strike prices ranging from $105,000 to $110,000 to earn premium income, limiting its upside on bitcoin while keeping exposure.
• Consequently, GameStop no longer possesses its bitcoin and now records it as a receivable rather than as an owned asset.

GameStop’s (GME) significant, $420 million bitcoin BTC$69,153.58 transfer earlier this year was not an exit – but it no longer holds the coins either.

In its annual report submitted on Tuesday, the video game retailer disclosed that 4,709 BTC – out of its total of 4,710 coins – had been pledged to the prominent crypto exchange Coinbase (COIN) as part of an over-the-counter covered-call strategy.

This disclosure clarifies a previous January transaction where GameStop transferred nearly its entire bitcoin position to Coinbase Prime. This action had raised speculation that the company was getting ready to divest its holdings, particularly as digital asset treasury firms were facing increasing pressure from declining crypto prices, prompting inquiries about whether GameStop was reducing risk.

The BTC options strategy

What transpired instead is that the company wrote short-dated call options on its bitcoin, with strike prices set between $105,000 and $110,000 and expirations extending through late March.

The strategy was designed to generate income from option premiums while restricting profits beyond those price levels.

The filing indicates a $0.7 million liability associated with the options and a $2.3 million unrealized gain. It also noted that following the fiscal year ending January 31, some of the covered-call contracts expired unexercised, while the associated collateral remained with Coinbase Credit.

No longer holding bitcoin

This structure has also altered how GameStop accounts for its assets.

Because Coinbase is able to rehypothecate or redeploy the pledged bitcoin, the company no longer categorizes these assets as directly held. It now records a receivable, representing the right to reclaim an equivalent amount of BTC in the future.

This marks a significant departure from its buy-and-hold strategy. Although GameStop stated that its economic exposure remains comparable to directly holding bitcoin, the position is now encumbered. It is held with a counterparty and is linked to derivatives.

The company reported that receivables tied to the pledged bitcoin amounted to $368.3 million at the end of the fiscal year. Additionally, it recorded a $59.7 million unrealized loss associated with the decline in bitcoin’s price.