[00:01:42] Intro: Celebrating 10 years. You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now for your host, Preston Pysh.

[00:02:00] Preston Pysh: Hey everyone. Welcome to the show. We got a hot one here.

[00:02:04] Boy, there’s been a lot of chatter online and a lot of excitement for this discussion with Pierre Rochard, Jim Chanos, legendary Short Trader, and Pierre Rochard, legendary Bitcoin.

[00:02:15] So we’re talking about MicroStrategy, we’re talking about Bitcoin treasury companies and whether there should be a multiple paid on top of their treasury or their MNav. And to start off this conversation, what I’m going to try to do, because this is going to get probably very technical in the next hour, and what I want to do for the average listener that maybe isn’t dialed into all the financial jargon is I want to try to frame this up. So that they understand Jim’s position of why he’s taking this short position on MSTR’s common stock and then we’ll go from there.

[00:02:50] So if you’re watching on YouTube, you’re going to see the chart. If you’re listening on audio, you’re only going to hear this. And I would highly encourage you to go back to the YouTube to kind of see this specific chart because I think it’s graphically going to help make sense for everybody.

[00:03:02] But here you go. I’m going to pull up the chart and. When we look at this chart, the number that’s higher is the, MicroStrategy common stock. The lower number there is Bitcoin’s performance. This is from the start of when MicroStrategy started a Bitcoin treasury Strategy.

[00:03:21] And Jim, I’m not trying to put words in your mouth, I’m just trying to frame this up. So if I say anything that isn’t accurate, just kind of correct me here, but in short, Jim’s position is he expects this spread that you’re seeing in the chart to collapse and somewhat track what Bitcoin’s doing. That this is overdone, is Jim’s position.

[00:03:42] Pierre’s position is that this is a normal market behavior and that this is going to continue to persist. That a Bitcoin treasury company that does this responsibly should have some type of premium above Bitcoin’s performance. Whether it’s this much performance that we’re seeing on the chart, or somewhat below that, or even higher than that, that is something that is going to continue to persist into the future.

[00:04:07] I’m going to start with Jim. Did I frame that correctly as we’re looking at this chart. 

[00:04:12] Jim Chanos: Sort of. In the two lines are the price of one Bitcoin and the price of one share of MicroStrategy, correct? Well, the problem, of course is that’s not the trade. The trade is that MicroStrategy, by its own admission and design has been increasing the amount of Bitcoin per share of MicroStrategy.

[00:04:34] So what you really want to look at is the MNav chart, which is the premium over the requisite amount of Bitcoin per share that MicroStrategy trades at. That’s a really important part because I see on social media, people put derivations of this type of chart.

[00:04:51] Look how much MicroStrategy has outperformed Bitcoin. But of course, you would’ve been buying Bitcoin relative to one share of short MicroStrategy. Over this period, the amount of Bitcoin per share MicroStrategy has battled over this period has increased, rather, you know, meaningfully. So that’s an important caveat. 

[00:05:11] Preston Pysh: Pierre, is there anything that you want to clean up from what I said?

[00:05:15] Pierre Rochard: So, to be clear, I’m not a big MicroStrategy holder. I’m a Bitcoin guy myself, and so apriori I, I should be very sympathetic to Mr. Chao’s perspective and that I don’t want other assets outperforming Bitcoin. That said, I also have been listening very carefully to the arguments that he’s put forth publicly, and I have found a lot to disagree with in those arguments, and I think that having a premium to NAV is not unnatural, or something that is wise too short at all times, right?

[00:05:49] Maybe you could make an argument for a swing trade of, oh, it’s overheated at this point. I’m going to take a view, but that it wouldn’t surprise me, and I think there’s very strong structural arguments. For why the equilibrium MNav is greater than one.

[00:06:04] Preston Pysh: Okay. So let’s dive into the comment that you just said there, Pierre, which is, you’re looking at this and you’re saying, and I’m going to pull the chart down so we can see each other. You’re saying that in the short term, putting on a trade, like what Jim’s doing could make sense if you feel like it’s overdone, is that properly stated?

[00:06:22] Pierre Rochard: Yeah, but that’s generically true, right? So you could go long Nvidia, short Bitcoin and outperform within some given timeframe, but really what I’m disagreeing with is the underlying thesis, not the timing of a trade. 

[00:06:36] Preston Pysh: Okay. Jim, how do you respond to that? 

[00:06:38] Jim Chanos: I thought I heard the opposite, was that the thesis makes sense and the timing may be off, but okay. In any case, we should understand something that given where the MNav is now about 1.9, it only got here since last March. So over the last 15, 16 months. Prior to that, from the beginning of sailor’s bitcoin Strategy in 2020, the MNav really traded between one and 1.2. For long periods of time and traded down to 1.0 I believe twice over that time period.

[00:07:15] So this is really something that’s happened in the last little over a year and what makes it to me interesting. And we got involved with this for our clients in December of last year. I gave this as an idea at my annual investment conference on December 5th. I think the mnet was about 2.5 at that point. Is that we now see catalysts. It’s very unusual in these sort of relative value trades to have catalysts, right? You’re buying one thing and you’re selling the other, the same thing for some premium, and you hope that investors, you know, realize that and act accordingly.

[00:07:51] In this case, it’s dramatically different. You actually have the company at question working in your favor to close that spread by selling common convertible and we’ll get to the preferreds, I’m sure during this discussion pretty aggressively to actually try to capture some of that premium in order to buy more Bitcoin. So you have the company itself working to close the spread. That’s the difference. And that was not really the case in material amounts prior to a year ago or so. 

[00:08:22] Pierre Rochard: I would push back on the historical MNav. I think that if we go back to August of 2020, when they started, we could exclude those data points, but it was over six x. Then it drifted down. It drifted down to less than one for approximately one month, May, 2022, before bouncing back. And it has bounced above one X since that May 2022.

[00:08:51] And so when I zoom out and look at that MNav. I think that there are fundamental reasons that are pushing the MNav above one, and I think that they’re twofold to Mr. Chanos’ point, Strategy has a monopoly on the issuance of MSTR, and I think this is really what differentiates it from an ETP, right?

[00:09:13] With an ETP, you have authorized participants that are competing against each other on the creation of the underlying, or sorry, the financial instrument, right, of the shares. And that essentially means that the authorized participants are the ones that are capturing the spread between the physical Bitcoin in the trust and the shares that are being traded on the public market.

[00:09:34] So, with the case of MSTR, that value exclusively accrues to Strategy because they are the only ones that can create more MSTR shares. And that benefits the common stuff from that creative dilution perspective. And so I think that’s one is, is that factor that drives the MNav above one and gives management an incentive to limit the ATM use in order to drive up the MNav. 

[00:10:03] The other is the option value of leverage. Now, historically, they have exercised that option value at times in the form of convertible bonds and in the form of perpetual preferred stock. And that is also very different from an ETP like iBit, where they do not have the option to lever up. And so that when MicroStrategy levers up, the difference, the spread between their cost of capital, the cost of the debt, and Bitcoin’s returns that accrues to the common stock. And so the, I think that those are the two big factors that mean that unlike iBit ETP, we should expect a company like Strategy to trade at MNav greater than one under normal market conditions. I would add an asterisk of yes, if there is a severe bear market like we saw in 2022, you could see it trading at a discount, but that that is not an equilibrium position. 

[00:11:09] Jim Chanos: Well, my response to that was I think it’s a bit of a false equivalent in comparing it to the ETF. Your real equivalent is actually someone like you, right?

[00:11:20] It’s the actual investor who has the choice of luck to make, and so my view is, is that the choice is whether I’m going to buy micro strategy for this flywheel type strategy is called, or if I’m going to buy Bitcoin directly myself and I can lever my own balance sheet. There are, what you say is the option value of doing it in a corporate structure is, I think, more than offset by the agency risk and double taxation that exists in the corporate structure, and not a lot of people talk about that, that in effect, you’ve got a preference above you.

[00:11:54] A federal tax liabilities admittedly deferred until they liquidate or sell the MicroStrategy. And then any capital gains, of course, of both a Bitcoin holder. A holder of common stock have, on top of that, you are actually owning a piece of paper. You don’t own Bitcoin. So historically, and in almost all other types of of situations like this, these types of structures have trended.

[00:12:19] They tended to trade at a discount to NAV for those reasons. In this case, we’re trading at a premium, and I think it’s unwarranted. 

[00:12:28] Pierre Rochard: So I think this is where we do have a lot of agreement, which is that there are trade offs between holding spot Bitcoin, you know, self custody and cold storage, versus holding shares in strategy.

[00:12:40] And you’ve highlighted the most important ones. I think though, that we can’t underestimate the difficulty of getting leverage on SPOT Bitcoin and cold storage. Typically, you have to deposit the Bitcoin with a custodian, so you’re already adding the agency risk there. And then the terms on that are really much worse than the terms that strategy is accessing.

[00:13:03] So typically when you’re borrowing against your Bitcoin as an individual, you might get a one year term. And if we look at Bitcoin cycles, typically they’ve historically been four years, so it doesn’t get you through the cycle, and that a much higher interest rate as well because you don’t have the ability to monetize the upward volatility skew of the options on the equity.

[00:13:26] And then on top of the worst debt terms that you have, you also have the illiquidity of the position, right? Which is that in order to get outta the position you have to essentially dele and sell the Bitcoin versus just selling the stock. So I think that. The ability to access the terms that Mr. Sailor has with either a 0% convertible bond that has a greater than four year term, or a perpetual preferred that has a 10% coupon or dividend that is not accessible to individuals holding Bitcoin and cold storage.

[00:14:02] And so that’s where I would disagree. That just empirically, I think that the market is saying there’s value in that. 

[00:14:09] Jim Chanos: Okay. Here’s my viewpoint on that, and what you’re saying is accurate, however, it underscores. I think a fundamental issue that I have when I spar with people on social media about the street, others, is the size of this position relative to your overall portfolio.

[00:14:27] So if my entire portfolio is Bitcoin and Kohl storage, you are correct, right? It’s difficult to get good credit terms on that. For all the reasons you correctly point out. But if I am a more typical investor or an institution, right, and Bitcoin is 5% or 10% or 20% of my overall. Asset allocation or risk asset allocation, then it’s a moot point, right?

[00:14:54] I have all kinds of other ways to borrow against other equities, real estate, whatever it might be, and the dollars are fungible. The problem I have is that when I have this debate with people, it becomes very apparent to me. That they are truly maxy Bitcoiners, right? That the vast majority about all of their net worth or investment portfolio is in Bitcoin or Bitcoin related securities.

[00:15:20] Now, I want to point out a really important point here. This trade as I have it odd and as I’ve recommended it to clients, is less than 5% of our portfolio. It’s sort of like people who like to love to knock us on Tesla, not realizing that Tesla even at its worst point. Was no more than 4% of our portfolio in 2020.

[00:15:40] Okay? So it’s a diversified portfolio of risk positions has been our history over 40 years. Okay? It’s not a hundred percent. I’m not a hundred percent short MicroStrategy in long Bitcoin. And so that difference really changes the utility curve on a lot of this in a lot of our debate, I think, because again, I think for an institution or an individual that has Bitcoin as some reasonable part of their portfolio, but not a hundred percent of their portfolio, they can get leverage and they can get leverage on relatively favorable terms on their other assets.

[00:16:13] And so I think that perspective where you’re standing. On that side of the risk spectrum, I think makes a difference in this debate. 

[00:16:21] Pierre Rochard: Yeah. And I would encourage those institutions to leverage up against their other assets and buy Bitcoin. I think that would be a really good trade. And so really it comes down to, and this is from listening to, uh, you with Joe Ental on odd, lots the size of the market for preferreds and the long-term growth rate for Bitcoin outpacing the dividend rate on the preferreds.

[00:16:42] And so that’s where I think that I can agree with you that the size for perpetual preferreds, or even preferred stock as a market is small. I would argue that it’s small because the existing products are no good, and that strategies putting together products that are superior to those. And if we look at their performance in the market over the past six months or so, they have done much better than the rest of the preferreds and that that will attract capital and that that will grow that market for strategy and for other leveraged Bitcoin equities that choose to pursue the approach of issuing preferreds.

[00:17:18] And that as long as Bitcoin’s long term growth rate is greater than the coupon value will accrue to the common stock and justifies a greater than one MNF. Okay. Couple of things on that. 

[00:17:31] Jim Chanos: Yes, the preferreds have actually outperformed the common recently, so I don’t know if that’s good or bad, the near term for the common, but a few things.

[00:17:39] First of all, the total net debt. Plus preferred relative to the enterprise value of MicroStrategy, at least as of yesterday or the day before, was about 9% of their enterprise values, about $11 billion out of 130 billion in enterprise value. So it’s 9% of their capitalization at market. They are paying.

[00:18:01] Pretty much close to double digits. They yield on that 9% of their capital. So they are an unlevered company right now. And if they are paying a 9% of their capital, if they are paying 10%. Yields after tax or close to after tax, what are they going to be paying? If preferred becomes 50% of their capitalization, it’s gonna be a lot higher than 10%.

[00:18:24] And so you’re gonna get a crossover effect pretty quickly, I suspect if he really wants to ramp the preferreds, and I think that that remains to be seen, so we can argue it, but we just. Don’t have enough information right now. The preferreds are, as I said, just a small part of the capitalization of MicroStrategy.

[00:18:43] It goes back to something that Matt Levine pointed out in his recent podcast, and that is the perception that if I’m buying MicroStrategy, I’m buying a leveraged vehicle to buy Bitcoin. But the back of the matter is if you’re buying MicroStrategy common, you are not getting levered. The idea of being levered is having more than a dollar of Bitcoin for the dollar I put up.

[00:19:07] That’s leverage. In fact, because of the premium, the mnet premium, you’re getting, you know, 60 cents on 50 cents on the dollar of Bitcoin for every dollar you put up. So your trade is not levered, even though MicroStrategy is trying to lever up. It’s a paradox. 

[00:19:23] Pierre Rochard: Well, so is it a paradox? I don’t think it is a paradox because that is what equities are abound, is what are expectations about the future.

[00:19:32] And so we would expect the future leverage to be priced in today, right, with some kind of discount rate. And I agree with you that strategy should not over leverage itself with preferred. I think though that I’m bullish on Bitcoin, I think that the value of the asset side of their balance sheet is going to continue to increase and that they will naturally be de-leveraging if they don’t do anything else.

[00:19:55] And that if they continue to tap off four ATMs, that they’re going to be able to continue to accrue Bitcoin onto the balance sheet and grow into their MN. And so there’s not so much a paradox, I think, as much as. It’s about the forward-looking nature of financial markets. 

[00:20:16] Preston Pysh: Pierre, wouldn’t you say it’s more a forward-looking expectation of what you think Bitcoin’s gonna do at the root of all of this versus how gyms may be seeing it?

[00:20:25] Pierre Rochard: Well, so if we look at the MNF being the option value of future debt, and we factor in an upward volatility skew for bitcoin. Then if we think that Bitcoin’s not going to grow very quickly or it’s going to go sideways, then the M nav is rich. If we think that Bitcoin’s going to perform very well over the coming decades, then we can have a debate as to whether it’s at fair value, if it’s undervalued.

[00:20:55] Jim, would you agree with that? 

[00:20:56] Jim Chanos: I would agree. Again, in theory, the problem becomes in practice. And we can add to that the additional, now we’ve been talking about the universe of Bitcoin at at MicroStrategy relative to bitcoin. But now we have to bring into the fact of what also is new in the past handful of months, 2025.

[00:21:16] And that is the proliferation of Me Too Strategies. And I think that is more, and I, I believe Grants interest rate Observer quoted over 130 companies as of, uh, a month ago. I think it’s more now that are embarked on bitcoin treasury strategies and because. There is nothing proprietary in theory here, and we can have an argument about that, about micro strategy’s first mover advantages, but in theory, these companies can proliferate.

[00:21:43] If I am going to be able to create value in a corporate structure by issuing stock in a premium and levering it up in judicious amounts, there will be no shortage of companies that will be created or will transfer themselves into becoming Bitcoin treasury companies. And of course the proof of the pudding is that we’re seeing that right now by the day.

[00:22:06] You know, coffee shops in Spain, more bun SPACs. I mean it’s going to increase as long as this is profitable and so far because it’s been profitable, we’re going to see an explosion of issuance and that’s beginning of course to happen’s. Really been happening in the last one to four, five weeks. 

[00:22:22] Preston Pysh: So I really like this point, and if I was just gonna kind of expound on it, if new Bitcoin treasury strategies come in and they’re very small and market cap size relative to MicroStrategy and they’re implementing this same approach, shouldn’t their stock trade at a much bigger M Nav and potentially collect a lot more market interest than MicroStrategy, which is a behemoth that has to do a whole lot more to continue to expand their treasury.

[00:22:51] Then call it a company that’s doing this at a market cap of a billion or less. And the proof that I would kind of point to is when we look at meta planete and we look at the size of meta planete and how fast they’re expanding their treasury, you look at their MAV and it’s massive. So if more companies come onto the market and start implementing this, and they’re at a really small market cap, do they.

[00:23:12] Take attention away from MicroStrategy and somewhat collapse their multiple over their M. Now, because the market loses, and this is obviously over the coming five or 10 years as this plays out, do you think that that could potentially. Collapse down the M nav of MicroStrategy because of all these competing companies.

[00:23:32] And Jim, am I explaining this kind of in what your, what your quote point is? I’ll be 

[00:23:36] Jim Chanos: here after first and then I’ll go. 

[00:23:38] Pierre Rochard: Yeah. So I think that at a macro level, what’s happening is that these companies are shorting the dollar, right? They’re borrowing dollars, they’re buying Bitcoin, in my view, it’s a classic speculative attack.

[00:23:50] It’s what Treasury Secretary Scott Besson was doing in England with Mr. Soros. And it’s happening at a scale that is unprecedented and in vehicles that are unprecedented, right? That we’re doing this in publicly traded companies, not private hedge funds. And so this is, I think it’s public in a way that is unusual.

[00:24:10] Where does it stop being profitable? Where do we have. A kind of convergence to a one XM nav. I think that it’s with the success of Bitcoin, right, that once you can no longer borrow dollars and dollars are worthless and so are Yen and other currencies, that at that point it will trade at one x multiple of the Bitcoin, right?

[00:24:30] Assuming that management is not taking on some other kind of business to generate more SATs, flow, uh, Bitcoin revenues, right? So how long will that take? When I first started learning about Bitcoin. I thought it would take less than a year. I thought that the entire monetary system would be replaced by Bitcoin by the end of 2014.

[00:24:49] I was wrong. It’s now a decade later, and so, you know, I would just draw a line and say it’s gonna take a few more decades. It might be by the year 2050 that will asymptotically approach one XM nav equilibrium point, and that Bitcoin has reached full market saturation. But before that, I think that there’s plenty of room for competitors and imitators and that I would argue that Sailor needs all the help in the world to execute on this epic trade.

[00:25:19] I would also add that I do think strategy has some moats around it. So one is the liquidity. So I think liquidity network effects are very important in financial markets, and so whether it’s the liquidity of the common stock. The preferreds, even the market access for the convertible bonds, right? That there’s comfort around that.

[00:25:39] Due to his disciplined execution over the past five years, he has a track record. And on top of that, the liquidity of the options chain around MSTR, which has allowed for a proliferation of an ecosystem of other ETF products that are. Monetizing that volatility and developing products for that. So I think that is challenging to replicate.

[00:26:02] He’s already got orders of magnitude more Bitcoin than anybody else on the balance sheet. So I do think that there are real moats, but your point is well taken that smaller competitors could have a higher M nav and attract attention from retail investors that ultimately makes it more competitive. But on net, I dunno where it shakes out. It seems like he’s got quite a lead. 

[00:26:24] Jim Chanos: I’ll make one side note before I respond. So when I gave the MNA trade in our investment conference, we have a stock picking conference every year. They’re a contest. Every year in the early December, I told the group that if they really wanted to be aggressive for the short leg of the trade, they should consider the three X-M-S-T-R-E-T-F trading in London.

[00:26:45] And I, you’re smiling, I think, you know, what’s happened to that. And, and so there is an ecosystem and there are lots of different vehicles. And when people say, well, what are you doing? It just depends on how to execute the trade at any given time, what’s out there. So with that said. Just want to give some practical numbers to kind of, for people listening or viewing to consider.

[00:27:06] So I still believe the most speculative retail, that overall stock market I’ve ever seen was really the first six months of 2021. Um, and that includes crypto, but also included NFTs and more support from my perspective as an equity guy, spac. Um, SPACs raised a billion dollars a night in the first quarter of, uh, 2021.

[00:27:27] They raised about 90, $90 billion from Jan one to, to March 31. And of course, that was just a stunning number. It turned out to be a huge part of the amount of total equity issuance for the entire year. But that was relative to a sort of $40 trillion US equity market. Right now. We have, in terms of just very recently, which is July of 2025, we’re seeing reasonably large announcements every day now of Mnet treasury, Bitcoin, treasury companies raising capital in the form of equity pipes converts, and it’s hundreds and hundreds of millions of dollars a night.

[00:28:06] And so relative to the 2 trillion. Dollar coin market, this is considerable. We are seeing SPAC like 2021 numbers in the Bitcoin treasury market right now as we speak. And so you really are gonna need to see this broaden out. Beyond the Bitcoin community into the much broader equity community to keep handling this amount of issuance.

[00:28:29] It is material at this point. It wasn’t a year ago with pretty much MicroStrategy and that was it. And now it is lots and lots of companies every single night announcing deals. And so that’s something I would keep my eye on. 

[00:28:42] Pierre Rochard: To my knowledge, the plurality of those have commitments of dollars, but have not deployed those dollars and actually bought the Bitcoin.

[00:28:50] And so when I look at the next six months, I would say that there’s a greater probability of strategies M Nav expanding due to a bullish Bitcoin market due to imitators entering. Then there is of it’s M nav trending down due to too much competition in the equity markets, and so that’s, when I look at the two x today, it feels normal in the sense that when I look at the Bitcoin volatility and where we are in the cycle, it seems like it’s at fair value and that if we get another leg up for Bitcoin, that will cause the multiple to perhaps increase back to two and a half or to three.

[00:29:35] Before coming back to two. And that seems far more likely than a crash in Bitcoin causing the MNF to compress. Well, again, I’m not counting, part of the interesting 

[00:29:46] Jim Chanos: aspects of the trade is I’m not counting on a crash in Bitcoin to make the trade work right. I mean, Bitcoin can go up and you could still lose money on the MN being long MicroStrategy relative to Bitcoin.

[00:29:59] That’s the problem. And I do think the competitive offerings. We’ll exert constant pressure. So it’s a fundamental disagreement we have on the MicroStrategy of nav on top of everything else. 

[00:30:10] Pierre Rochard: So I think that to your point about the size of the capital raises relative to the $2 trillion market, I think that’s gonna cause the $2 trillion market to grow.

[00:30:21] And the, we could see it become 4 trillion, 8 trillion in due time. And that really, if we look at the catalyst for what has driven down MAF in the past. It’s less volatility, which I think gets you down to a two X and then really a bear market that gets you below two x. And so I think that outside of those conditions, which are Bitcoin price.

[00:30:47] Situations that there is not an opportunity or that the competition from other Bitcoin treasury companies will be insufficient to drive down MST R’S mna. Well, 

[00:30:58] Jim Chanos: keep in mind Ms. DR is not being inactive during this themselves. I mean, he just tapped the equity ATM again a week ago for half a billion dollars when everybody thought that was over.

[00:31:09] We’ll see. I mean, not only do we have the other Bitcoin treasury companies issuing hundreds of millions of dollars, but we have sailor himself continuing to do it. 

[00:31:18] Pierre Rochard: And we could eventually have the US Treasury doing it as well did President Trump has signed an executive order asking for one, establishing a strategic Bitcoin reserve and two, finding ways to accumulate additional Bitcoin on the balance sheet.

[00:31:32] And so I think that there’s gonna be a lot of big buyers over the coming years. That’s the ultimate irony, right? Bitcoin 

[00:31:38] Jim Chanos: was supposed to be outside of governmental spheres, right? That was the ethos to begin with. And now Bitcoin proponents are hoping that the government gets involved. We’ll see. I think the glass half empty view on that is when push comes to shove, it’s gonna be very difficult for the US government to really turn its back on the reserve currency and the seniors that it has.

[00:31:59] There’s an advantage of having the world’s reserve currency and abdicating it to a stateless currency. We’ll see maybe, but I don’t think that’s gonna happen. 

[00:32:08] Pierre Rochard: Yeah, I think that Bitcoin doesn’t need the US government, but the US government does need Bitcoin. I think it’s the only viable solution to the fiscal and monetary problem it’s in, and that if we look at how does a sovereign respond to a speculative attack, I think there’s really three options on the table.

[00:32:24] One is raise interest rates. So if Chair Powell came out and raised interest rates to be competitive with sailors, perpetual preferreds, right? Let’s get interest rates up to 10%. Then that would, I think, materially deteriorate. The prospects for MSTR two would be capital controls. So Senator Elizabeth Warren could propose a bill saying, no public company can have more than 10% of its balance sheet in Bitcoin or other capital controls like that.

[00:32:54] That would, again, create obvious problems for MSTR three. Which I think is the best response to a speculative attack is to have currency reserves in place and to be able to stabilize the exchange rate. Using currency reserves and getting those in place means buying Bitcoin and having a strong reserve of Bitcoin that essentially provides backing for the US dollar so that the US dollar itself ultimately becomes one for one backed by Bitcoin.

[00:33:24] Jim Chanos: Again, I don’t see that happening. I see big advantages of the US government being able to try to inflate away its debt problem, which is a problem for all assets, right? And Bitcoin should do well on a standalone basis, but I don’t see the US government becoming an actual agent directly itself in a meaningful way for bit Bitcoin.

[00:33:44] Preston Pysh: Jim, if the government would, does that really cause issues for your fundamental thesis with the MN on MicroStrategy? 

[00:33:52] Jim Chanos: Not necessarily. Remember, I’m long Bitcoin. So again, the government coming in to purchase or governments coming in to purchase will affect one leg of the trade directly, positively, and it remains to be seen whether they put restrictions on others, as Pierre has mentioned as possibility.

[00:34:11] Do they tax it and the corporate structure as a way to raise revenues? I mean, it gets back to my original point about agency risk of holding this in a corporate structure with a paper trail. There’s lots of ways in which that could become very, very attractive. For governments to raise revenue. So there’s a myriad of ways we won’t know until we see in which governments can be involved in this area.

[00:34:32] Pierre Rochard: So to kind of take it back to historical MNA for MSTR, what would you say would be the catalyst that caused it to expand from 1.2 in January 24 to a peak of, let’s say three and a half in November. I think euphoria over the Trump election, but he was not elected yet in January when the expansion began.

[00:34:56] That first leg of the expansion was February, March with the ETFs. He’s up to. 

[00:35:01] Jim Chanos: We’ve gone up to three, I think in March Of that. Yeah, of that year. Yeah. And then came back down and then really took the leg up in the fall, 

[00:35:09] Pierre Rochard: and that was concurrent with BlackRock and all the other ETFs coming out, which really should have compressed the M nav, you know, if we’re looking at it as competition.

[00:35:18] Correct. But again, I think that that’s fine. I wasn’t 

[00:35:22] Jim Chanos: newall then. So. Great. I mean, that’s the reality of it. The reality of it is, is we’ve been involved since December. And partly because of the rapid issuance by MicroStrategy itself. That’s what really for us, got us interested. It was starting earlier in 2024, as you know, but it really, really meaningfully picked up at the end of the year and into 2025.

[00:35:45] Pierre Rochard: I guess my point is that I think that the catalyst for the expansion of the MAF was the Bitcoin price increasing and that creating forward expectations on. Upward volatility skew. And so to me, the primary catalyst for where MAF goes is Bitcoin’s performance and that all the other catalysts like competition from adjacent vehicles like the ETPs are not only secondary, but actually paradoxically might by driving up the Bitcoin price, be positive, callous, and that it’s cooperation, not so much competition.

[00:36:22] All right, well I’ll fundamentally disagree with that last 

[00:36:24] Jim Chanos: point. More supply. Will not allow increased prices in 

[00:36:29] Preston Pysh: the form of increased mf. So, Jim, you made a comment earlier in the conversation that the company is working to close the spread to this point that you just said right there. I think the community would push back.

[00:36:41] The Bitcoin community would push back and say, well, this is why he’s doing preferred issuance, is because this is giving him the cash that he needs in order to buy more Bitcoin. That in Michael’s mind, is compounding at, call it 40 to 50% annualized, and then he is paying this dividend. That’s eight to 10%.

[00:36:58] Which is delayed way out into the future as he continues to see this Bitcoin compound. He’s not diluting common shareholders when he goes about using these preferred vehicles. So the argument is that he’s not working to close the company’s spread. He’s working to amplify it. ’cause then in Bitcoin channels, they use what’s called an adjusted M nav, where the preferred stock is subtracted out of the denominator of the equation.

[00:37:26] So you could make the argument that he is actually working to expand MAF. Do you agree with that? Do you disagree with the way I’m framing that? I’m just kind of curious to hear your thoughts. 

[00:37:35] Jim Chanos: I can’t disagree with the actual aspects of what you’re saying. I can disagree with the fact that it’s not material yet.

[00:37:42] Right? It’s a very small part of the total enterprise value. If he can continue to issue, preferred at eight to 12% and there’s an unlimited appetite, and he could raise tens of billions of dollars. Gotta go then. That’s an interesting point. I could argue that the MN will reflect increased leverage in the firm because whatever you might think about Bitcoin appreciating more than the coupon, there’s higher risk.

[00:38:08] So that may reflect itself in the MN as well. I would point out the MNV has decreased slightly since the preferred program has geared up since the end of May. 

[00:38:19] Preston Pysh: In adjusted terms or in just traditional? Oh, regular, regular, traditional. Yeah. 

[00:38:22] Jim Chanos: So, so far we’re not seeing the torque effect onto the MN spread.

[00:38:29] That people would hope for. It may happen, but it may not happen. It hasn’t happened yet. If anything, it’s down a little bit. So again, I think that if he issues $50 billion of preferred, I don’t think he’s going to be raising it at 10%. And then you begin to get into the problem. If you’re raising it at 15 or 20%, uh, you’re really expecting Bitcoin to compound at that rate of return.

[00:38:52] A lot of Bitcoin people think that’s what’s gonna happen. I’m ambivalent on that, as you know. So we’ll have to see. And again, we’ll have to see what the market for these preferreds are. I think it’s a lot smaller than people think, but 

[00:39:05] Pierre Rochard: I’m open to the idea. Yeah. I think the market for them will expand and that the recent activity on the M nav.

[00:39:13] Has really been about Bitcoin’s volatility being subdued rather than the preferred’s not working. I think that to really see the torque, we’ll have to see another leg up in Bitcoin and that I think that Sailor and the management team and the board at strategy would not approve Preferreds program. That would really get into.

[00:39:34] 20% dividends or half the balance sheet. I think that they’ll be more conservative than that. And that sailors’, you know, stated approach has been intelligent leverage and that there’s lots of ways to lever up on top of Bitcoin. That are not intelligent because you can get liquidated and, you know, run into all sorts of issues given bitcoin’s cyclical nature.

[00:39:58] And so I think that he won’t do that. But you’re right that that’s where we get into the agency risk. And I think that I, I would argue that’s the strongest argument, right? Is not your key, not your Bitcoin 

[00:40:09] Preston Pysh: guys, what I want to do is afford you guys both a closing argument, like a minute, two minutes, whatever you guys want to use.

[00:40:17] To kind of talk your point, and then I want to do about five minutes of something that I think is really fun and that the listener will enjoy. So go ahead. Jim, do you want to go first or Pierre? Sure. Yeah, go ahead Jim. 

[00:40:28] Jim Chanos: I’ll go first. Look, I think Pierre and I might agree on more things than we disagree, which I hope that the listener and the viewer understands.

[00:40:37] You can have fundamental differences in viewpoints on pricing and still see a lot of the concepts to be. Consistent with each other’s viewpoints. I would think that the biggest, maybe the biggest difference we have, with the exception of, of agreeing on Agency Rich is that I do believe the increased amount of supply by the Me Too companies is really important here.

[00:40:58] I think that the markets are only so big when it comes to issues. That’s been my history over 40 years. When you see issuance, I’ve always joked Wall Street has a printing press just like the Fed. It usually takes a while for it to get going. But what it does, it’s pretty efficacious. And I think we’re at the point now where Wall Street has got the printing press in the Bitcoin real, and I think that’s gonna ultimately keep M Devs both depressed.

[00:41:25] And possibly be a, a very important catalyst for their decline. 

[00:41:29] Pierre Rochard: I think that printing press is going to be bidding up Bitcoin. I think that strategy has a significant amount of Bitcoin relative to even number two or number three, and that they will benefit from any kind of euphoria caused by imitators driving up the Bitcoin price.

[00:41:47] And I would just add, I really want wholeheartedly want to thank Mr. Chanos for engaging, whether it’s on social media or in this debate. You know, I, I spent the past three years arguing with Senator Elizabeth Warren about Bitcoin, and she never engaged with me on a, is to, we had to eventually take her to federal court.

[00:42:07] So that was a different situation and I think that it’s really good to be able to exchange views like this. So thank you for coming on. I agree. I, and I agree with that. I agree. I agree. It’s 

[00:42:17] Jim Chanos: been really, it’s been a lot of fun and I’ve enjoyed the debate. 

[00:42:21] Preston Pysh: Jim, I have one. I’m sorry. I do have one final question for you that I think everybody that would probably be listening to this that are Bitcoiners would want to know and it’s, it’s more of like an A DIQ question, which is why not just go long Bitcoin or just go long MSTR and just why put the complexity into the position.

[00:42:39] Why not just pick one of these and go long and just kind of sit back and enjoy the ride? You can do that. Thanks. Okay. Here’s where I’m gonna take that as your response. So Jim, you’re a legendary short seller, and I’m really just curious because you were shorting Enron and they blew up and one of the most spectacular financial news stories of all time.

[00:43:03] And I’m really curious how you see that particular scenario. Versus the Bitcoin space and more how you’re seeing the interactions on Twitter. Because Pierre and I have been in this space for more than a decade, and we’ve seen tons of different narratives. We’ve seen a lot of debate online. We’ve been maybe at the center of a lot of this debate, you know, online through the years.

[00:43:27] And what I’m gonna do is I’m gonna share my screen just to give the audience a taste of like what this is like online for people that aren’t. Intimately familiar of like how these engagements go. So here’s a post where I say, Hey, this debate’s happening. What do you want us to ask? Carla responds, I don’t know who Chanos is, but at this point I’m afraid to ask.

[00:43:48] Another person comes in here and they literally. Take AI and they take Jim’s face and they put him on, you know, this Avengers theme. And I’m just kind of curious from your perspective, you’ve been in financial markets for decades. Yeah. What is this social experience like compared to these other like Enron type scenarios in the past?

[00:44:12] Jim Chanos: Well, I don’t know how old you guys are, but you might have been old enough, but, uh, there was a much, much. Even crazier arena back in the late nineties of the internet message boards. It just, there weren’t memes and there wasn’t as quickly interactive as social media is today. But I mean, the stuff that I used to see it here on the Yahoo message boards back in the day of the late, late nineties, might surprise some of your viewers and listeners is to, uh, you know, what’s on social media today?

[00:44:42] I mentioned it early on, and that is in social media, people tend to gravitate toward what interests them the most. And in the Bitcoin community, it’s obvious what that is. And what they don’t seem to understand is that in my world, this is one trait of medi, right? You know, Enron was a fantastic trait for us.

[00:45:02] It was probably the fifth or sixth most profitable trade for us in 2001, right? We have a bunch of. TMT shorts that went down and we had bigger size than those and nobody knows those. And conversely, Tesla, our must celebrated 10 x on it, which we had in the late nineties in the form of it being short a OL, which was no fun.

[00:45:23] That happens too, but you watch your risk, it’s a couple percent position. You trim it. You do what you need to do. And yet social media is sort of the opposite end of the telescope, right? In that people really focused on that one thing that is their entire portfolio or yeah, meaningful part of their portfolio and then project it onto everything else.

[00:45:44] And I think that that’s. What I find a bit bemusing about social media when it comes to financial assets is just how completely emotional investors get about anybody opining on their asset of choice and understanding that, you know. As a professional, I don’t take it personally and they shouldn’t either.

[00:46:06] Pierre Rochard: We’re in love with our bags, as they say. And you know, I got my master’s degree in accounting at the University of Texas at Austin, so we spent a lot of time in class studying the Enron case. And so I have a tremendous amount of respect for Mr. Chanos on that. And so thank you for your years of service in the financial industry and uncovering frauds like that.

[00:46:28] Well, uh, thank you 

[00:46:30] Jim Chanos: and again, this was very enjoyable. I enjoyed doing it and really appreciate, uh, Preston, you putting this together. 

[00:46:36] Preston Pysh: Appreciate it, Jim and Pierre. This was fun and uh, you know, we’ll let the market decide. We’re obviously, uh, you know, Bitcoin bold and I’m an MSTR bull, so we’ll see what happens.

[00:46:48] And I hope everybody enjoyed the conversation. Thank you both for making time. Really appreciate it. 

[00:46:52] Jim Chanos: Lot of fun. Thank you. All right, thank you. See you Jim. Thank you. Y’all have a great day, big fan. Alright guys. Thanks. Thank you. Have a good day. 

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