- Michael Saylor responded to a negative trade by short-seller Jim Chanos against MicroStrategy.
- Chanos set up a hedged short position, betting that MicroStrategy’s net asset value will fall over time, while holding a long position in Bitcoin.
- Saylor listed three potential outcomes for the short bet, each of which he claims would result in losses for Chanos.
- Saylor emphasized MicroStrategy’s use of non-dilutive preferred shares to acquire more bitcoin without lowering the value of common stock.
- Chanos argued that MicroStrategy shareholders are paying a large premium above the bitcoin market price, calling the valuation unsustainable.
Michael Saylor, CEO of MicroStrategy, publicly addressed a bearish trading position made by short-seller Jim Chanos earlier this week. The exchange happened after Chanos, known for predicting high-profile financial collapses, opened a hedged short-sale against MicroStrategy.
Chanos is betting that MicroStrategy, which holds significant bitcoin reserves, is overvalued in the stock market. He shorted MicroStrategy shares and simultaneously placed a long bet on bitcoin, reflecting his belief that the company’s net asset value (mNAV) of about $63 billion is not sustainable. According to Chanos, MicroStrategy trades at a 1.7 times multiple of this net asset value.
Saylor responded on Bloomberg TV, describing himself as the “largest issuer of BTC-backed credit instruments.” He outlined three scenarios in which Chanos’ investment could lose money. Saylor explained that, thanks to preferred share offerings—products labeled STRK, STRF, and STRD—MicroStrategy can purchase more bitcoin without diluting its common shareholders’ value. He stated, “There’s plenty of appetite on Wall Street for a new series of preferred shares or other non-dilutive credit instruments.”
Saylor identified three possible results for Chanos’ trade. In the first, MicroStrategy’s mNAV could remain high or increase, leading to losses for those betting against the company. In the second, if the premium on MicroStrategy’s shares lowers, Saylor claims the company would issue more preferred shares and use the funds to acquire more bitcoin. In the third, if the mNAV drops significantly, Saylor said the company could use money raised from new preferred stock to buy back common shares on the market.
Chanos has criticized Saylor’s approach, stating on social media: “Shareholders are paying around $220,000 for BTC that trades around $110,000.” He called the company’s pricing strategy “financial gibberish,” arguing MicroStrategy’s method is based on speculation rather than actual bitcoin value. Chanos doubts the company will be able to maintain its current mNAV, even with ongoing capital raises through non-dilutive instruments.
Saylor claims products like STRK, STRF, and STRD, which are preferred shares, pose no risk of liquidation, do not require principal repayment, and are not exposed to interest rate risks. He argues that these tools can help the company finance bitcoin purchases over an extended period.
This debate between Saylor and Chanos highlights the risk and uncertainty involved in investing in firms with large cryptocurrency holdings. For more detailed company assets, readers can visit this MicroStrategy asset link.
Further discussions about similar strategies are available in analyses like "MicroStrategy wannabes and the return of mNAV mania".
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