GameStop's stock plummeted 25% on Thursday, erasing $3 billion in market value after announcing a $1.3 billion convertible bond sale to buy Bitcoin. The plan, inspired by Michael Saylor’s Bitcoin investment strategy, initially sparked a rally but quickly soured investor sentiment once details of the debt financing were revealed.

The sharp drop in shares is largely due to how convertible bonds impact the market. Hedge funds often use them for arbitrage, which requires them to short the stock, adding significant selling pressure. Additionally, GameStop’s 35%-40% conversion premium is lower than previous bond offerings from MicroStrategy, signaling growing investor skepticism toward the strategy. Adding to the concerns, Bitcoin is down 18% from its all-time high, and economic uncertainty has pushed investors away from riskier assets.

GameStop’s move to Bitcoin comes as the company struggles in a rapidly digitizing gaming industry. The retailer reported a 28% decline in revenue and announced plans to close more stores as sales of hardware and software fell. CEO Ryan Cohen, who played a key role in GameStop’s rise as a meme stock, has long been rumored to follow MicroStrategy’s Bitcoin playbook, especially after posting a photo with Saylor in February.

The company now joins a growing list of businesses using debt to buy Bitcoin, a strategy that has seen MicroStrategy’s stock surge 2,600% since 2020. While this approach helps avoid immediate stock dilution, it increases financial risk. Given GameStop’s volatile history, its latest move makes it an attractive target for arbitrage traders, adding further uncertainty to its future.