Famous Wall Street Short Seller Is Taking Aim At MicroStrategy: Should You Worry?

• Jim Chanos has said he is actively shorting MicroStrategy.
• Chanos poked at MicroStrategy’s NAV premium.
• Presto Research has weighed in on whether investors should worry.

Long-time investors in MicroStrategy  MSTR have probably weathered it all, from early concerns over the risks of the firm’s Bitcoin accumulation strategy to harsh mockery in bear markets and questions over whether the firm can sustain demand with the emergence of spot exchange-traded funds and copycat firms.

But even for these investors with nerves of steel forged through many fires, it is hard not to get unnerved hearing that one of the most famous short sellers in history, Jim Chanos, has taken aim at the business.

Should you worry?

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‘Buying Something For $1, Selling It For Two And A Half Dollars’

Chanos told CNBC in an interview on Wednesday that he was shorting MicroStrategy while longing Bitcoin.

The investor most famous for finding cracks in Enron’s business and successfully shorting it ahead of its eventual collapse slammed MicroStrategy’s valuation at a premium to Bitcoin as “ridiculous” even as other firms are copying its playbook of using leverage to accumulate the digital asset.

Chanos told CNBC he was “short the spread” because it was “so levered to the price.”

“We’re doing exactly what MicroStrategy and [executive chairman] Michael Saylor are doing,” he added. “We’re selling MicroStrategy stock and buying bitcoin and basically buying something for $1, selling it for two and a half dollars.”

Meanwhile, this trade does not mean Chanos is bullish on Bitcoin or sees value in it.

“I don’t know where bitcoin is going. A hundred thousand, a million, 10,000? I don’t know, I don’t think anybody else knows,” he told CNBC. “But what I do know is it’s generally profitable to short $1 for two and a half dollars or $3.”

To Chanos, it is simply an arbitrage opportunity betting on MicroStrategy’s premium to net asset value shrinking. The firm currently trades at 1.8 times the premium to its Bitcoin holdings, boasting a market cap of $108 billion against $59 billion worth of Bitcoin. This premium hit a high of 2.5 times the NAV in October.

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‘No Reason For Panic’

In a Friday note, cryptocurrency research firm Presto Research said there was “no reason for panic” among MicroStrategy investors over Chanos’ trade.

“MSTR’s periodic BTC accumulation resembles a growing balance sheet fueled by recurring income. This allows investors who view BTC as an eventual store of value to assign an earnings multiple to MSTR’s BTC acquisitions,” the firm said, justifying MicroStrategy’s premium.

In simple terms, the argument is that if investors believe that Bitcoin will be worth more in the future, they can value MicroStrategy not just by the current price of its Bitcoin holdings but also by the expected growth of its holdings and earnings from those holdings as the price appreciates.

But Presto Research noted that this valuation model may not hold in a bear market, making Chanos’ trade a complex bet on a BTC downturn.

“Whether Chanos understands Bitcoin enough to make that call remains questionable,” the firm said.

Chanos wound down his hedge fund in November 2023 as years-long losing shorts against Tesla and AOL weighed on his profitability.

“The marketplace for what I do has changed,” Chanos told The Wall Street Journal at the time.

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