- Legendary stock investor Jim Chanos is long Bitcoin, short Strategy.
- He is exploiting a price mismatch in the spread.
- Chanos is critical of Strategy’s Bitcoin buying scheme.
Legendary short seller Jim Chanos is betting against Michael Saylor.
The famed short seller said companies like Saylor’s Strategy use the crypto hype cycle to pump their own stock prices while buying Bitcoin — and that’s a huge opportunity for short-sellers.
“Strategy, and more ominously its copycats, are selling retail investors the idea that they are buying Bitcoin at a corporate structure so they should value them at a premium,” Chanos said in a May 14 interview with CNBC.
“It’s ridiculous.”
Chanos says he is shorting Strategy stock and using returns made from declines in the shares to buy more Bitcoin.
Short sellers make money by borrowing stock in a company, then selling it in the hopes that it will go down. When the price falls, they buy back the shares then return them to the lender, pocketing the difference.
“We’re doing exactly what Michael Saylor is doing,” Chanos said.
“We’re selling Strategy stock and buying Bitcoin.”He said he’s essentially shorting the spread between the company’s stock price — which trades at about $400 and is up 33% this year — and the value of the nearly $59 billion in Bitcoin it holds.
Bitcoin is up about 10% this year.
The gap between the share price and Bitcoin’s price “is a good barometer of how much retail speculation there is,” Chanos said.
In 2020, investors valued Strategy stock at more than six times its value in Bitcoin, and last year it topped three times its value, according to Strategy Tracker.
By going long on Bitcoin while shorting Strategy, Chanos is betting that the company’s stock premium will compress over time.
It’s called a relative value trade, a type of arbitrage where traders try to exploit gaps in prices of similar assets.
The basis trade
Sophisticated traders at hedge funds have seized on Bitcoin price gap strategies before.
They have popularised the so-called market neutral basis trade, where traders try to make money from the gap between the spot price of Bitcoin and Bitcoin futures.
To date, some 130 companies have mimicked Strategy’s playbook.
Last week, health care firm KindlyMD agreed to merge with Bitcoin holding firm Nakamoto Holdings to form a publicly traded Bitcoin company, aiming to raise a whopping $700 million to add more Bitcoin to its balance sheet.
Semler Scientific, Metaplanet, and Tesla are also among companies that have bought Bitcoin to shore up their stock prices.
At the end of April, another firm with the sole purpose of buying up Bitcoin in droves also appeared. Dubbed Twenty One, it’s led by bold Bitcoin believer Jack Mallers.
Who is Jim Chanos?
Chanos gained fame decades ago for being the first to call out fraud at Enron, which collapsed in bankruptcy in 2001.
He’s built a career since with bearish research at the firm he spearheads called Kynikos Associates, using a Greek word that roughly translates as “cynic.”
In 2023, Chanos told DL News he’d been shorting Coinbase since 2022. But more recently it’s been a rough ride for market bears.
In 2023, Chanos announced plans to shutter hedge funds he manages because of a decline in interest for fundamental stock pickers.
He now runs Chanos & Company, an advisory and research provider to financial clients.
Trista Kelley is DL News’ Editor in Chief. Pedro Solimano is a DeFi Correspondent. Got a tip? Email at trista@dlnews.com or psolimano@dlnews.com.
