Is GameStop’s big bet on NFTs going?

GameStop‘s (GME -4.90%) The current turnaround strategy remains fairly opaque to investors, but what we’ve seen has primarily centered on non-fungible tokens, or NFTs, the digital ledger technology that provides ownership or use rights to a digital asset.

In May, video game retailer GameStop launched Wallet, a self-coverage Ethereum wallet that a user controls and can access without leaving the browser, and followed up in July with an NFT marketplace where tokens can be bought and sold.

Image source: Getty Images.

It remains a mystery exactly how GameStop will survive, let alone thrive, in a video game industry that is increasingly shifting to digital and downloaded gaming. But chairman Ryan Cohen seems to think that includes riding the trendy cryptocurrency and NFT markets.

Unfortunately, it also looks like the NFT idea may be a failure, putting GameStop’s own future in doubt.

Crumbling crypto

Cryptocurrencies and NFTs are in freefall. Bitcoin, the largest crypto by market cap, has crumbled 60% in 2022 to $19,000, while the second largest crypto, Ethereum, is down 64%. Volumes on NFT marketplaces are also collapsing, with Opensea, the most popular marketplace, seeing 90% of its volume evaporate through August.

GameStop’s marketplace isn’t doing any better during this crypto winter. The platform got off to a fast start in its first week in business, generating just under $2 million in first-day transactions, and the top 50 collections saw more than $7.5 million worth of transactions in its first week. But that was about as good as it got.

Based on fees of 2.25% GameStop fees on transactions, GameStop NFT had approximately $44,500 in revenue on sales volume of $1.98 million in its very first day of operation. However, Cointelegraph reports that NFT fell to just over $3,750 in daily revenue on a volume of $167,000 by the end of August, and it has plunged further since then. Data from Dappradar shows that the volume in the last 24 hours has been down to $85,000, which equates to fee income of just $1,912 per day. Average pricing is also falling, down 22% in the last month.

If GameStop was hoping that NFTs would give it some floor until it figured out what to do with video game retail, it looks like it’s crumbling.

NFT’s diminishing role in gaming

NFTs are generally falling out of favor, and even in GameStop’s primary business, gaming companies are suddenly backing away from their embrace of the technology.

Bloomberg notes that the studios came up with NFTs at the height of their popularity, believing that the tokens could give players a way to own their in-game digital bounty won or purchased, while also providing a new revenue stream for themselves. But now they are running away from it.

Minecraft Developer Mojang has banned companies from creating NFTs for its game and is refusing to allow Minecraft worlds to be built on blockchain networks, reversing earlier decisions to explore their potential. Ubisoftthe creator of some extremely popular titles such as Ghost Recon and Assassin’s Creedhas also pulled back from pursuing an in-game NFT marketplace.

Bloomberg says it afterwards Take-Two Interactive bought Zynga for its blockchain potential, it has studiously avoided discussing it in every quarterly earnings call since.

If gaming companies want nothing to do with NFTs and crypto, how will video game retailer GameStop make it a viable part of its own business?

A foundation built on sand

All this does not bode well for the retailer’s future. GameStop has only survived this far because it wisely leveraged its meme stock status and raised a ton of cash to pay off its debt. So while it’s consistently losing money at the moment ($267 million in the last quarter), it’s not about to empty its bank account anytime soon (it still has nearly $1 billion in cash and equivalents).

Despite that, GameStop needs to come up with a realistic vision for how it will grow the business. NFT marketplaces and crypto were always risky bets to build a recovery on. Now that even gaming companies are backing away from them, investors may be better off staying far away from GameStop’s stock until it brings a viable plan to the table.