We Study Billionaires - The Investor’s Podcast Network - BTC243: Jim Chanos Vs Pierre Rochard MSTR mNAV debate (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, we have two very special guests to have a little debate about Bitcoin treasury companies and the premiums they should potentially fetch in the market. On the one side of the debate, we have legendary shortseller, Mr. Jim Chanos. He's a Wall Street veteran with legendary calls like shorting Enron, amongst many others. And then on the other corner, we have Mr. Pierre Rochard, who's a lot of longtime Bitcoin OG and financial expert defending the premium that should be paid for these

Starting point is 00:00:34 treasury companies. Pierre and his friend Michael Goldstein were the originators of the paper on Bitcoin's speculative attack on the dollar, which many people in the Bitcoin space here all the time, but might not know Pierre was the first person to write about it. So if you're in finance, you're probably going to love this conversation. If you're more of a casual observer, the financial jargon might be a little heavy at times, but I really try my hardest to make it accessible for all the listeners and wrap up and provide descriptions along the way. One last thing I just want to say. I love the power of the internet and online social media. Don't laugh too hard, but this whole conversation happened because one person on X who goes by

Starting point is 00:01:14 the name Space Bowl Hoddle 58K 13% or ADIQ hoarding man-made numbers. Yes, that's his entire handle online, is the reason this whole conversation happened in the first place because of the friendly banter that was happening. So, guys, you can't make this stuff up anymore. What a fun place to operate. That's all I got. I hope you guys enjoy the show. Celebrating 10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone, welcome to the show. We got a hot one here. Boy, there's been a lot of chatter online and a lot of excitement for this discussion with Pierre Richard, Jim Chano's legendary short trader and Pierre Richard, legendary Bitcoins.

Starting point is 00:02:15 So we're talking about micro strategy. 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. So if you're watching on YouTube, you're going to see the chart.

Starting point is 00:02:52 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. 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 micro strategy common stock. The lower number there is Bitcoin's performance. And this is from the start of when micro strategy started a Bitcoin treasury strategy. 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. 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

Starting point is 00:03:58 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. I'm going to start with Jim. Did I frame that correctly as we're looking at this chart? Sort of. In the two lines are the price of one Bitcoin and the price of one share of micro strategy, correct? Correct. Well, the problem, of course, is that's not the trade. The trade is that Micro Strategy, by its own admission and design, has been increasing the amount of Bitcoin per share of micro strategy. So what you really want to look at is the MNAV chart,

Starting point is 00:04:38 which is the premium over the requisite amount of Bitcoin per share that Micro Strategy trades at. That's a really important part because I see on social media, people put derivations of this type of chart. Look how much micro strategy has outperformed Bitcoin. But of course, you would have been buying Bitcoin Bitcoin relative to one share of short micro strategy over this period. The amount of Bitcoin per share, micro strategy has battled with this period has increased

Starting point is 00:05:07 rather meaningfully. So that's an important caveat. And Pierre, is there anything that you want to clean up from what I said? So, I mean, to be clear, I'm not a big micro strategy holder. I'm a Bitcoin guy myself. And so a priori, I should be very sympathetic to Mr. Chanas'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

Starting point is 00:05:39 lot to disagree with in those arguments. And I think that having a premium to NAV is not unnatural or something that is wise to short at all times, right? 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, 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. 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.

Starting point is 00:06:21 Is that properly stated? Yeah, but that's generically true, right? So you could go long, NVIDIA, short Bitcoin, and outperform within some given time frame. But really what I'm disagreeing with is the underlying thesis, not the timing of a trade. Okay. Jim, how do you respond to that? 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,

Starting point is 00:06:53 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 of 2020, the MMAV really traded between 1 and 1.2 for long periods of time and traded down to 1.0, I believe twice over that time period. 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.

Starting point is 00:07:28 I gave this as an idea at my annual investment conference on December 5th. I think the MNAB was about 2.5 at that point, is that we now see catalyst. 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 same thing for some premium, and you hope that investors, you know, realize that. and act accordingly. In this case, it's dramatically different. You actually have the company at question working in your favor to close that spread

Starting point is 00:08:00 by selling common convertible, and we'll get to the preferred, 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. 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 6x.

Starting point is 00:08:37 And then it drifted down. It drifted down to less than one for approximately one month, May 22, before bouncing back. and it has bounced above 1X since that May 2022. 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.

Starting point is 00:09:03 To Mr. Channis's point, strategy has a monopoly on the issuance of MSTR. And I think this is really what differentiates it from an ETP, right? With an ETP, you have authorized participants, 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. And so with the case of MSTR,

Starting point is 00:09:38 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 accruative dilution perspective. And so I think that's one 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. 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,

Starting point is 00:10:24 where they do not have the option to lever up. And so when micro strategy 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 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 a MNAV greater than one under normal market conditions.

Starting point is 00:10:58 I would add an asterisk of, yes, if there is a severe bare market, like we saw in 2022, you could see it trading at a discount, but that that is not an equilibrium position. 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? It's the actual investor who has the choice of what to make. And so my view 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.

Starting point is 00:11:37 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 of federal tax liabilities, admittedly deferred until they liquidate or sell the micro strategy, and then any capital gains, of course, that both a Bitcoin holder and 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 situations like this, these types of structures have tended to trade at a discount to NAV for those reasons.

Starting point is 00:12:24 In this case, we're starting at a premium, and I think it's unlawranted. So I think this is where we do have a lot of agreement, which is that there are tradeoffs between holding spot Bitcoin, you know, self-custody and cold storage versus holding shares in strategy. 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.

Starting point is 00:12:53 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. 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. And then on top of the worst debt terms that you have, you also have the illiquidity of

Starting point is 00:13:32 the position, right? Which is that in order to get out of the position, you have to essentially de-level. and sell the Bitcoin versus just selling the stock. So I think that the ability to access the terms that Mr. Saylor 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 in cold storage. And so that's where I would disagree that just empirically, I think that the market is saying there's value in that. Okay.

Starting point is 00:14:10 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. So if my entire portfolio is Bitcoin and coal 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'm a more typical investor or an institution, right,

Starting point is 00:14:43 and Bitcoin is 5% or 10% or 20% of my overall asset allocation or risk asset allocation, then it's a moot point, right? 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 maxi bitcocters, right? That the vast majority about all of their net worth or investment portfolio is in Bitcoin or Bitcoin related securities. 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%

Starting point is 00:15:28 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. Okay, so it's a diversified portfolio of risk positions. It's been our history over 40 years. Okay, it's not 100%. I'm not 100% short micro strategy and long Bitcoin. And so that difference really changes the utility curve on a lot of this and a lot of

Starting point is 00:15:58 our debate, I think, because again, I think for an institution or an individual that has Bitcoin is some reasonable part of their portfolio, but not 100% of their portfolio, they can get leverage. They can get leverage on relatively favorable terms on their other assets. 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. 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 you with Joe Wiesenthal on Oddlots, the size of the market for preferreds and the long-term growth rate for Bitcoin outpacing the dividend rate on the preferreds.

Starting point is 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 strategy is 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 leverage Bitcoin equities that choose to pursue the approach of issuing preferred.

Starting point is 00:17:18 And that as long as Bitcoin's long-term growth rate is greater than the coupon, on value will accrue to the common stock and justifies a greater than one MNF. Okay. A couple of things on that. Yes, the Preference 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. First of all, the total net debt plus prefers relative to the enterprise value of micro strategy,

Starting point is 00:17:47 at least as of yesterday, the day before, was about 9% of their enterprise value. There's about $11 billion out of $130 billion in enterprise value. So it's 9% of their capitalization at market. They are paying 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 on 9% of their capital, if they are paying 10% yields after tax or close to after tax,

Starting point is 00:18:18 what are they going to be paying if preferred becomes 50% of their capital? It's going to be a lot higher than 10%. And so you're going to get a crossover effect pretty quickly, I suspect, if he really wants to ramp the preferred. 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 micro strategy. And it gives back to something that Matt LeBean pointed out in his recent podcast,

Starting point is 00:18:48 and that is the perception that if I'm buying micro strategy, I'm buying a leveraged vehicle to buy Bitcoin. But the fact of the matter is if you're buying micro strategy common, you're not getting levered. The idea of being levered is having more than a dollar of Bitcoin for the dollar I put up. That's leverage. In fact, because of the premium, the MNAV premium, you're getting 60 cents or 50 cents on the dollar of Bitcoin for every dollar you put up.

Starting point is 00:19:17 So your trade is not levered, even though Micro Strategy is trying to leverage. up. It's a paradox. 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. 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 lever 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, and that if they continue to tap all four ATMs,

Starting point is 00:19:59 that they're going to be able to continue to accrue Bitcoin onto the balance sheet and grow into their MNAV. And so there's not so much a paradox, I think, as much as it's about the forward-looking nature of financial markets. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord,

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Starting point is 00:24:35 Well, so if we look at the MNAV 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 MNAV 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 a fair value or if it's undervalued. Would you agree with that? 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 that had micro strategy relative to Bitcoin, but now we have to bring in to the fact of what also is new in the past handful of months, 2025, and that is the proliferation of Me Too

Starting point is 00:25:28 strategies. And I think that is more, I believe Grant's interest rate observer quoted over 130 companies As of 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 strategies first mover advantages, but in theory, these companies can proliferate. If I am going to be able to create value in a corporate structure by issuing stock at 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.

Starting point is 00:26:12 And of course, the proof of the pudding is that we're seeing that right now by the day. You know, copy shops in Spain, Moribun Spacks. 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. It's really been happening in the last sort of four, five weeks. So I really like this point. And if I was just going to kind of expound on it, if new Bitcoin treasury strategies come in and they're very small and market cap size relative to micro strategy and they're implementing this same approach, shouldn't their stock trade at a much bigger MNAV and potentially collect a lot more market interest than micro strategy, which is a

Starting point is 00:26:56 behemoth that has to do a whole lot more to continue to expand their treasury than 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 metaplanet and we look at the size of metaplanet and how fast they're expanding their treasury, you look at their MNAV and it's massive. So if more companies come on to the market and start implementing this and they're at a really small market cap, do they take attention away from micro strategy and somewhat collapse their multiple over their MNAV 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 MNAV of micro strategy because

Starting point is 00:27:41 of all these competing companies? And Jim, am I explaining this kind of in what your quote is? I'll get to your answer first and then I'll go. Yeah, so I think that at a macro level, what's happening is that these companies are They're shorting the dollar, right? They're borrowing dollars. They're buying Bitcoin. In my view, it's a classic speculative attack. 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,

Starting point is 00:28:17 I think, it's public in a way that is unusual. Where does it stop being profitable? Where do we have a kind of convergence to a 1x MNAV. 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, so that at that point, it will trade at one X multiple of the Bitcoin, right, assuming that management is not taking on some other kind of business to generate more Sats flow 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. I was wrong. It's now a decade later. And so,

Starting point is 00:29:04 you know, I would just draw a line and say, it's going to take a few more decades. It might be by the year 2050 that will asymptotically approach 1xMNAV equilibrium point and that coin 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. 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 due to his discipline

Starting point is 00:29:51 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. He's already got orders of magnitude more Bitcoin than anybody else on the balance sheet. So I do think that there are real modes. But your point is well taken, that smaller competitors could have a higher MNAV and attract attention from retail investors that ultimately makes it more competitive. But on net, I don't know where it shakes out.

Starting point is 00:30:33 It seems like he's got quite a lead. I'll make one side note before I respond. So when I gave the MNAV trade on 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 3x MSTR, ETF trading in London. And you're smiling.

Starting point is 00:30:56 I think you know what's happened to that. 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 a given time for what's out there. So with that said, just want to give some practical numbers for people listening or viewing to consider. So I still believe the most speculative retail and overall stock market I've ever seen was really the first six months of 2021. And that includes crypto, but also included NFTs and more importantly from my perspective as an equity guy, SPAC.

Starting point is 00:31:32 Spax raised a billion dollars a night in the first quarter of 2021. They raised about 90 billion dollars from Jan 1 to March 31. And of course, that was just a stunning number. not 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 U.S. 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 MNB Treasury, Bitcoin Treasury companies raising capital in the form of equity pipes, converts, and it's hundreds and hundreds of millions

Starting point is 00:32:15 of dollars a night. And so relative to the $2 trillion 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 going to need to see this broadened out beyond the Bitcoin community into the much broader equity community to keep handling this amount of issuance. It is material at this point. It wasn't a year ago was pretty much micro strategy 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. To my knowledge, the plurality of those have commitments of dollars,

Starting point is 00:32:57 but have not deployed those dollars and actually bought the Bitcoin. And so when I look at the next six months, I would say that there's a greater probability of strategies MNAV expanding due to a bullish Bitcoin market due to imitators entering, then there is of its MNAV trending down due to too much competition in the equity markets. And so when I look at the 2X today, it feels normal in the sense that when I look at the Bitcoin volatility

Starting point is 00:33:32 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 before coming back to two. And that seems far more likely than a crash in Bitcoin causing the MNAV to compress. Well, again, I'm not counting. Part of the interesting aspects of this trade is I'm not counting on a crash in Bitcoin to make the trade work. I mean, Bitcoin can go up and you could still lose money on the MNV being long micro strategy relative to Bitcoin. That's the point.

Starting point is 00:34:09 That's the problem. And I do think the competitive offerings will exert constant pressure. So it's a fundamental disagreement we have on the micro strategy of Nav on top of everything else. So I think that to your point about the size of the capital raises relative to the $2 trillion market, I think that's going to cause the $2 trillion market to grow and that 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 MNAV in the past, it's less volatility, which I think gets you down to a 2x and then really a bare market that gets you below 2x. And so I think that outside of those conditions, which are Bitcoin price situations, that there is not an opportunity or that the competition from other Bitcoin treasury

Starting point is 00:35:04 companies will be insufficient to drive down MSTRs MNF. Well, keep in mind, MSDR is not being inactive during this themselves, right? I mean, he just tapped the equity ATM again. a week ago, perhaps a billion dollars when everybody thought that was over. We'll see. I mean, not only do we have the other Bitcoin treasury companies issuing hundreds of millions of dollars, but we have Saylor himself continuing to do it. And we could eventually have the U.S. Treasury doing it as well. The 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.

Starting point is 00:35:42 And so I think that there's going to be a lot of big buyers over the coming years. That's the ultimate irony, right? Bitcoin was supposed to be outside of governmental spears, 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 going to be very difficult for the U.S. government to really turn its back on the reserve currency

Starting point is 00:36:08 and the seorish that it has as an advantage of having the world's reserve currency. and applicating it to a stateless currency. We'll see, maybe, but I don't think that's going to happen. Yeah, I think that Bitcoin doesn't need the U.S. government, but the U.S. 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.

Starting point is 00:36:35 One is raise interest rates. So if Chair Powell came out and raised interest rates to be competitive with, with Sailor's 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,

Starting point is 00:36:58 no public company can have more than 10% of its balance sheet in Bitcoin or other capital controls like that 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 U.S. dollar so that the U.S. dollar itself ultimately becomes one-for-one backed by Bitcoin.

Starting point is 00:37:34 Again, I don't see that happening. I see big advantages of the U.S. 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 U.S. government becoming an actual agent directly itself in a meaningful way for Bitcoin. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance,

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Starting point is 00:41:12 slash income. This is a paid advertisement. All right. Back to the show. Jim, if the government would, does that really cause issues for your fundamental thesis with the MNAV on micro strategy? Not necessarily. Remember, I'm long Bitcoin.

Starting point is 00:41:28 So again, the government coming in to purchase or government is coming into 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, do they tax it in the corporate structure as a way to raise revenues? I mean, get back to my original point about agency risk of holding this in a corporate structure with a paper trail. There's lots of ways of which that could become very, very attractive

Starting point is 00:41:57 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. So to kind of take it back to historical MNF or 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? Yeah, I think euphoria over the Trump election. But he was not elected yet in January when the expansion began.

Starting point is 00:42:29 that first leg of the expansion was February, March with the ETFs. He got up to three, I think, in March of that year, yeah, and then came back down and then really took the leg up in the fall. And that was concurrent with BlackRock and all the other ETFs coming out, which really should have compressed the MNAV, you know, if we're looking at it as competition. Correct. But again, I think that that's fine. I wasn't involved then, so great.

Starting point is 00:42:57 I mean, that's the reality of it. The reality of it is we've been involved since December and partly because of the rapid issuance by micro strategy 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. I guess my point is that I think that the catalyst for the expansion of the MNAV was the Bitcoin price increasing and that creating forward expectations.

Starting point is 00:43:28 expectations on upward volatility skew. And so to me, the primary catalyst for where MNAV goes is Bitcoin's performance. And that all of 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 catalysts and that it's cooperation, not so much competition. All right. Well, I'll fundamentally disagree with that last point. more supply will not allow increased prices in the form of increased MNF.

Starting point is 00:44:04 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, 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 percent annualized. And then he's paying this dividend that's 8 to 10%, which is delayed way out into the future as he continues to see this Bitcoin compound, but 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.

Starting point is 00:44:46 He's working to amplify it because then in Bitcoin channels, they use what's called an adjusted MNAV where the preferred stock is subtracted out of the denominator of the denominator of the Bitcoin. the equation, so you could make the argument that he is actually working to expand MNAV. 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. 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, right? It's a very small part of the total enterprise value. If he can continue to issue preferred at 8 to 12%, and there's an unlimited an appetite and he can raise tens of billions of dollars at a go, then that's an interesting point.

Starting point is 00:45:32 I could argue that the MNAV will reflect increased leverage in the firm because whatever you might think about Bitcoin appreciating more than the coupon, there's higher risk. So that may reflect itself in the MNAV as well. I would point out the MNAV has decreased slightly since the preferred program has geared up since the end of May. In adjusted terms or in just traditional? Regular. Regular. So so far, we're not seeing the torque effect onto the MNAV spread that people would hope for. It may happen, but it may not happen. It hasn't been 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 percent. Are you really expecting Bitcoin to compound at that? that's great of return. A lot of Bitcoin people think that's what's going to happen. I'm ambivalent

Starting point is 00:46:29 of that, as you know. So we'll have to see. And again, we'll have to see what the market for these prefers are. I think it's a lot smaller than people think, but I'm open to the idea. Yeah, I think the market for them will expand and that the recent activity on the MNAV 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 Saylor and the management team and the board at Strategy would not approve Preferreds program that would really get into 20% dividends or half the balance sheet. I think that they'll be more conservative than that, and that Sailor's stated approach has been intelligent leverage and that there's lots of

Starting point is 00:47:20 ways to lever up on top of Bitcoin that are not intelligent because you can get liquidated and run into all sorts of issues given Bitcoin's cyclical nature. 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 would argue that's the strongest argument, right, is not your keys, not your Bitcoin. 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, to kind of talk your point. And then I want to do about five minutes of something that I think is really fun

Starting point is 00:47:56 and that the listener will enjoy. So go ahead. Jim, do you want to go first or Pierre? Yeah, go ahead, Jim. I'll go first. Look, I think Pierre and I might agree on more things that we disagree, which I hope that the listener and the viewer understands. You can have fundamental differences in viewpoints on pricing

Starting point is 00:48:13 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 agreeing on agency rich is that I do believe the increased amount of supply by the Me Too companies is really important here. I think that the markets are only so big when it comes to issues. It'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 realm.

Starting point is 00:48:54 And I think that's going to ultimately keep MNAVs both depressed and possibly be a very important catalyst for their decline. 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. And I would just add, I really wholeheartedly want to thank Mr. Chanos for engaging, whether it's on social media or in this debate. I spent the past three years arguing with Senator Elizabeth Warren about Bitcoin, and she never engaged with me.

Starting point is 00:49:37 We had to eventually take her to federal court. 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. And I agree with that. I agree. It's been a lot of fun that I've enjoyed the debate.

Starting point is 00:49:54 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 more of like an 80 IQ question, which is, why not just go long Bitcoin or just go long MSTR and just why put the complexity into the position? Why not just pick one of these and go long and just kind of sit back and enjoy the ride? You can do that? Okay, here's right. I'm going to 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 in one of the most spectacular financial news stories of all time. And I'm really curious how you see that particular scenario versus the Bitcoin

Starting point is 00:50:42 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 online through the years. And what I want to do is I'm going to share my screen just to give the audience a taste of like what this is like online for people that aren't, you know, 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. Another person comes in here and they literally take AI and they take Jim's face and they put them on, you know, this Avengers theme.

Starting point is 00:51:30 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? Well, I don't know how old you guys are, but you might have been old enough. But there was a much, much even crazier arena back in the late 90s of the internet message boards. It just there weren't memes and there wasn't as quickly interaction. as social media is today. But I mean, the stuff that I used to see it here on the Yadu message boards back in the day of the late 90s might surprise some of your viewers and listeners as to, you know, what's done social media today.

Starting point is 00:52:15 I mentioned it early on and that is in social media, people tend to gravitate toward what interests of 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 trade of many, right? You know, Adron was a fantastic trade for us. It was probably the fifth or sixth most profitable trade for us in 2001, right? We had a bunch of TMT shorts that went down and we had bigger size than those. And nobody knows those. And conversely, Tesla, our must celebrate it, 10x on it, which we had in the late 90s

Starting point is 00:52:53 in the form of a being short AOL, which was no fun. 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 focus on that one thing that is their entire portfolio or meaning part of their

Starting point is 00:53:14 portfolio and then project that on everything else. 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 investment. investors get about anybody opining on their asset of choice and understanding that, you know, as a professional, I don't think it personally. And they shouldn't either. 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

Starting point is 00:53:58 financial industry and uncovering frauds like that. Well, thank you. And again, this was very enjoyable. I enjoyed doing it and really appreciate Preston, you putting this together. Appreciate it, Jim and Pierre, this was fun. And we'll let the market decide. We're obviously, you know, Bitcoin bulls and I'm an MSTR bull. So we'll see what happens.

Starting point is 00:54:21 And I hope everybody enjoyed the conversation. Thank you both for making time. Really appreciate it. A lot of fun. Thank you. All right. See you, Jim. Thank you.

Starting point is 00:54:29 You all have a great day. Big fan. Really nice. All right, guys. Thanks. Thank you. Have a good day. Thank you for listening to TIP.

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We Study Billionaires - The Investor’s Podcast Network - BTC243: Jim Chanos Vs Pierre Rochard MSTR mNAV debate (Bitcoin Podcast)

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