Jim Chanos on the Nuttiness of 'Bitcoin Treasury Companies'

SPEAKER_2 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Tracy Alloway (0:18)

Hello there, Odd Lots listeners. You are about to listen to a very special episode. This is a conversation recorded live at our recent event in New York.

Joe Weisenthal (0:28)

That's right, we had a live Odd Lots event on June 26th. We had tons of conversations. We're gonna be rolling them out in the days ahead. But the first one we want to bring you was our headliner for the night, Jim Chanos.

Tracy Alloway (0:41)

That's right, the famed short seller. He was there giving us all his thoughts on the market right now. So, take a listen.

Joe Weisenthal (0:49)

All right, first question. Are Bitcoin treasury companies the stupidest thing you've ever seen in your entire life?

Jim Chanos (1:00)

You know, it's rarely, rarely that I have to increase my personal security after a podcast, which I had to do after our last podcast together when I sent some intemperate things about Bitcoin treasury companies.

Look, here's the thing. I get people very agitated about this and they point out on just what a genius idea this is. And I keep trying to point out to them, I'm doing the same thing that guys like Michael Saylor are doing. I'm on the same side of the trade. And I keep pointing out to my critics, you're on the opposite side of that trade. And you don't want to be on the opposite side of the trade. And the Bitcoin Treasury paradox being that you are the one buying the pieces of paper that have infinite supply so that Michael Saylor and I can buy the digital asset with the limited supply. And it makes kind of no sense. So what will inevitably happen is happening, and that is, there's nothing proprietary here. This is just simply raising capital to buy a financial asset. And other companies will do this. And in fact, even since the podcast we last did, I think the number of companies that have announced this strategy scores more. I think there's over 100 in the US and over 200 globally now.

Tracy Alloway (2:28)

So who's actually buying MicroStrategy? Because, you know, I thought...

Jim Chanos (2:33)

Everybody on my timeline.

Tracy Alloway (2:34)

Okay. But I thought once the spot ETFs, the spot Bitcoin ETFs came out, like this business model will go away and it hasn't.

Jim Chanos (2:42)

No, because there's a wonderful sales job that's being done about the fact that this is an economic engine in and of itself. And so, therefore, terms like Bitcoin yields are used, and I've called them financial gibberish because they are. And in fact, this will get arbed away, ultimately, by companies that will do this to try to capture that spread. In the case of MicroStrategy, it's substantial. It's still $50 billion, something like that, of the difference between the value of the enterprise value of the company and the value of their bitcoin holdings. But the thing that really kind of shot me into orbit on all this was when Saylor and others then said, well, no, you can't really value us on an NAV basis, the so-called MNAV, multiple of NAV. You actually have to also give us additional value for the amount of profit that we make every quarter from the appreciation in the asset.

And I said, I just pointed out, I said, well, 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 because it's the value of the house plus a multiple on the increase in the profitability of the asset.

Joe Weisenthal (4:08)

When you put it that way, it sounds a little absurd.

Jim Chanos (4:10)

It is absurd.

Joe Weisenthal (4:12)

There's like 200 of them now, right?

Jim Chanos (4:14)

It's over 200 globally.

Joe Weisenthal (4:16)

Yeah, that's it.

Tracy Alloway (4:18)

Wait, I have one more question. Why did MicroStrategy, I have to remember to call them strategy, but I can't bring myself to do it. Why did they switch from issuing the convertible debt to preferred shares?

Jim Chanos (4:31)

Because he realized that as he began to issue more and more common, it was putting pressure on the premium. Now, the latest iteration is, we're going to do this quasi equity security, quasi debt, preferred stock. And then we can torque up, we can lever up the balance sheet. Now, this is a company whose selling point a year ago was, we're not going to lever, because we have this wonderful equity that we can issue at a premium. And now they're saying, well, maybe if it trades above 2X, we'll issue equity. But if it's between 1 and 2X, we'll do preferred. And then if it's below 1 times, we'll buy back common. And then what is Chanos going to do? To which I said, well, I'll be out of the trade by then.