Veteran short seller Jim Chanos on Tuesday blasted the financial instruments employed by Michael Saylor’s company, Strategy Inc. (NASDAQ:MSTR), to sustain its Bitcoin (CRYPTO: BTC) play.
What happened: In an X post, Chanos argued that Saylor wants investors to value Strategy not only based on the net asset value of its Bitcoin holdings at market prices, i.e., NAV, but also to apply a multiple to the change in that NAV.
"It's like claiming that your house, which increased in market value last year from $450,000 to $500,000, is actually worth $1.5 million, because you also have to put a 20x multiple on the $50,000 increase," Chanos said.
The sharp reaction followed Saylor’s criticism of Chanos’ long Bitcoin, short Strategy position during a Bloomberg interview.
"I don't think he understands what our business model is," Saylor said. "What he still doesn't understand is that we are not a holding company or a closed-end trust, we are an operating company."
Saylor argued that, unlike trusts, Strategy can employ corporate maneuvers, such as selling preferred stock, to neutralize strategies such as those recommended by Chanos.
He said that if the premium to the value of Bitcoin holdings declines significantly, the company will issue preferred stock and buy back the common stock. "And if the stock rallies up, he's going to get liquidated and wiped out."
Chanos deemed these remarks as "complete financial gibberish," noting that Saylor's policies haven't changed Strategy's NAV significantly since the company pivoted to a Bitcoin standard in 2020.
Why It Matters: Chanos revealed an arbitrage opportunity in shorting Strategy’s stock while buying Bitcoin last month, suggesting that the stock’s premium over Bitcoin’s value is not justified.
For context, a NAV premium refers to the difference between Strategy's market capitalization and the value of its Bitcoin holdings. It is seen as a gauge of investor sentiment toward Bitcoin and the company's approach. As of this writing, the NAV stood at 1.87.
Strategy has led Bitcoin’s corporate adoption, building its reserve with proceeds from common stock, preferred stock, and convertible bond issuances. The firm held a stash worth $63.4 billion as of this writing, according to bitcointreasuries.net.
Price Action: At the time of writing, BTC was exchanging hands at $109,486.50, down 0.10% in the last 24 hours, according to data from Benzinga Pro.
Shares of MSTR were up 0.33% in after-hours trading after closing 0.24% lower at $391.18 during Tuesday’s regular trading session.
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