Bram Berkowitz, The Motley Fool
5 min read
In This Article:
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After it began buying massive amounts of Bitcoin in 2020, MicroStrategy stock has generated some of the best returns in the stock market.
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GameStop has struggled after its meme stock run in 2021, but it recently began following in MicroStrategy's footsteps.
In 2020, MicroStrategy (now doing business as Strategy) and its co-founder Michael Saylor embarked on a novel concept. They began using the company's capital to buy Bitcoin, the world's largest cryptocurrency.
Saylor believed that the token's finite supply could make it a hedge against inflation and, therefore, a smart investment. Saylor's bet would pay off far better than anyone could have imagined. MicroStrategy stock has rocketed roughly 2,970% (as of June 9) since the company's first Bitcoin purchase, and the company gained enough credibility that it could raise fresh capital from the capital markets to go out and buy Bitcoin. The company now owns over 2.5% of all outstanding Bitcoin tokens and refers to itself as a Bitcoin treasury company.
Seeing the company's success, as well as Bitcoin's continued appreciation, other companies are now taking a page from MicroStrategy's playbook. The struggling video game retailer GameStop (NYSE: GME), which saw its share price explode during the meme stock craze in 2020 and 2021, recently made a big purchase of Bitcoin too. Can this strategy save the struggling stock?
It's been a long and chaotic journey for GameStop, the brick-and-mortar giant of the video game universe. As foot traffic declined in malls and digital video game purchases became more common, GameStop stock struggled, leading many institutional investors to make big short bets against the stock.
In 2019, legendary investor Michael Burry, who correctly bet against the housing market right before the Great Recession, took a sizable position in GameStop, believing that shares were undervalued. Still, short interest continued to climb, at one point reaching over 63% of outstanding shares. Once the pandemic hit, essentially closing the economy for months and making the outlook for retail even more negative, it looked like the stock could be doomed.
However, the emergence of viral YouTubers like Keith Gill (Roaring Kitty) and the popular Reddit subgroup WallStreetBets encouraged retail investors to load up on the stock. This group of investors also refused to sell the stock, in order to create the mother of all short squeezes. From a low of $3.97 per share in 2019, GameStop soared to close to $500 per share at one point before Robinhood and other online brokerages suspended the ability to buy shares in what would lead to a controversial series of events. GameStop stock has remained volatile, although the company's market cap remains over $13 billion.
