Veteran short-seller James Chanos of Kynikos Associates is once again taking a shot at Strategy Inc. MSTR, calling its valuation framework not just flawed, but absurd.
What Happened: On Monday, Chanos slammed Strategy’s claim that its valuation should reflect not just the net asset value (NAV) of its Bitcoin holdings, but also a multiple on the unrealized gains, while speaking on Bloomberg’s Odd Lots podcast.
What pushed him “into orbit,” he says, was founder Michael Saylor's argument that appreciation in Bitcoin should be treated like recurring profit, and capitalized accordingly.
See Also: Strategy Adds 4,980 Bitcoin, Ups Total Stack To $42 Billion
He went on to mock this logic with an analogy. “That’s like saying, my whole net worth is in a house that's worth $400,000 that is now worth $500,000 a year or two later, and my net worth is not $500,000 now, it's $2.5 million,” he says, underscoring the folly of this argument. “It is absurd,” he says.
Chanos also dismissed the broader Bitcoin treasury trend as mere financial engineering. “There's nothing proprietary here. This is just simply raising capital to buy a financial asset,” he said.
He further notes that the model is spreading rapidly. “Since the podcast we last did, I think the number of companies that have announced this strategy is scores more. I think there [are] over 100 in the U.S. and over 200 globally,” he says.
Why It Matters: Chanos has reiterated several times that Strategy’s premium is unsustainable, warning that Bitcoin arbitrage “is not a static trade.”
This comes weeks after he revealed a strategic arbitrage trade, which involves going long on Bitcoin while selling Strategy short.
“We’re buying Bitcoin, selling Strategy stock, an arbitrage play, buying for $1, selling for $2.50,” Chanos said, adding that he doesn’t know where Bitcoin is headed, whether $100,000, $1 million, or $10,000, but he does know that “it’s generally profitable to short $1 for $2.50 or three dollars.”
Saylor responded to this by saying, “I don’t think he [Chanos] understands what our business model is,” he says. “What he still doesn’t understand is that we are not a holding company or a closed-end trust, we are an operating company.”
To which Chanos promptly hit back, referring to it as “financial gibberish.” He said, “Mr. Saylor wants you to value his business based not only on the net value of his Bitcoin holdings (NAV) at market, but additionally with a multiple on the change in that NAV.”
Price Action: Shares of Strategy were up 5.30% on Monday, trading at $404.23, and are down 0.63% after hours.
Photo Courtesy: LALAKA on Shutterstock.com
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