← The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network
The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network
BTC243: Jim Chanos Vs Pierre Rochard MSTR mNAV debate (Bitcoin Podcast)
00:58:15
A sharp debate on Bitcoin treasury companies: value creators or leveraged traps?
Loading summary
Transcript92 lines
- [00:01]
Preston Pish
You are listening to tip.
- [00:03]
Jim Chanos
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 short seller 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 longtime Bitcoin OG and financial expert, defending the premium that should be paid for these 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 hear 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.
- [00:52]
Preston Pish
If.
- [00:52]
Jim Chanos
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 the Name Space Bull Hodl 58k, 13 percenter, Adiq hoarding man made numbers.
- [01:22]
Preston Pish
Yes.
- [01:23]
Jim Chanos
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.
- [01:42]
Preston Pish
Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors podcast network. Now for your host, Preston Pish.
- [02:00]
Jim Chanos
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 Chanos, legendary short trader, and Pierre Richard, legendary bitcoiner. 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 m Nav. 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. 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.
- [03:03]
Pierre Rochard
But here you go.
- [03:04]
Jim Chanos
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. And this is from the start of when MicroStrategy 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 is inaccurate, 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 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.
- [04:13]
Preston Pish
In the two lines are the price of one Bitcoin and the price of one share of micro strategy. Correct?
- [04:21]
Pierre Rochard
Correct.
- [04:22]
Preston Pish
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. So what you really want to look at is the 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. Look how much MicroStrategy has outperformed Bitcoin. But of course, you would have been buying Bitcoin relative to one share of short microstrategy over this period. The amount of bitcoin per share microstrategy has had over this period has increased rather, you know, meaningfully. So that's an important caveat.
- [05:12]
Jim Chanos
And Pierre, is there anything that you want to clean up from what I said?
- [05:17]
Pierre Rochard
So, I mean, to be clear, I'm not a big microstrategy holder. I'm a bitcoin guy myself. And so a priori, I should be very sympathetic to Mr. Chanos 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. 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 M Nav is greater than one.
- [06:05]
Jim Chanos
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?
- [06:23]
Pierre Rochard
Yeah, 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.
- [06:37]
Jim Chanos
Okay, Jim, how do you respond to that?
- [06:39]
Preston Pish
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 M Nav 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 Saylor's bitcoin strategy of 2020, the MMAB 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. I gave this as an idea at my annual Investment Conference on December 5, I think the MNEB 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. 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.
- [08:24]
Pierre Rochard
I would push back on the historical M nav. 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 and then it drifted down. It drifted down to less than 1 for approximately one month, May 2022, before bouncing back. And it has bounced above 1x since that May 2022. And so when I zoom out and look at that M navigation, I think that there are fundamental reasons that are pushing the above one, and I think that they're twofold to Mr. Chanus'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 that are competing against each other on the creation of the underlying or sorry of 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, 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 accretive dilution perspective. And so I think that's one is that factor that drives the nav above one and gives management an incentive to limit the ATM use in order to drive up the MVav. 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 a M NAV greater than 1 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.
- [11:10]
Preston Pish
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, is that the choice is whether I'm going to buy microstrategy for this flywheel type strategy it's 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 of federal tax liabilities admittedly deferred until they liquidate or sell the microstrategy 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 traded. They tended to trade at a discount to navy for those reasons. In this case we're trading at a premium and I think it's unwarranted.
- [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. 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. 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 the position, right? Which is that in order to get out of the position, you have to essentially delever 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.
- [14:10]
Preston Pish
Okay? Use 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 this others is the size of this position relative to your overall portfolio. So if my entire portfolio is Bitcoin and cold 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? 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 bitcoiners, 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 on 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. Okay? So it's a diversified portfolio of risk positions. Has been our history over 40 years. Okay. It's not 100%, I'm not 100% short MicroStrategy and 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 100% of their portfolio, they can get leverage now, 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.
- [16:22]
Pierre Rochard
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 Isenthal 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. 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 leveraged bitcoin equities that choose to pursue the approach of issuing preferreds 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.
- [17:29]
Preston Pish
Okay, couple of things on that. 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. First of all, the total net debt plus preferreds relative to the enterprise value of microstrategy, at least as of yesterday or the day before, was about 9% of their enterprise value. It'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 in 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 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 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. It gets 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 fact of the matter is if you're buying MicroStrategy 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 M net 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.
- [19:24]
Pierre Rochard
Well, so is it a paradox? I don't think it is a paradox because that is what equities are about, 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 preferreds. 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 deleveraging if they don't do anything else. And that if they continue to tap all four ATMs that they're going to be able to continue to accrue Bitcoin onto the balance sheet and grow into their M nav. And so there's not so much a paradox, I think, as much as it's about the forward looking nature of financial markets.
- [20:16]
Preston Pish
Let's take a quick break and hear from today's sponsors.
- [20:19]
Jim Chanos
Have you ever been interested in mining bitcoin? As a miner myself, I've been using simple mining for the past few months and the experience has been nothing short of seamless. I mine with the pool of my choice and the bitcoin is sent directly to my wallet. Simple Mining, based in Cedar Falls, Iowa, offers a premium white glove service designed for everyone from individual enthusiasts to large scale miners. They've been in business for three and a half years and currently operate more than 10,000 bitcoin miners based in Iowa. Their electricity is over 65% renewable thanks to the abundance of wind energy. Not only do they simplify mining with their top notch hosting and on site repair services, but they also help you benefit financially by running your operations as a business. This approach offers significant tax advantages and enhances the profitability of your investment. Do you ever worry about the complexities of maintaining your mining equipment? They've got you covered for the first 12 months. All repairs are included at no extra cost. If you experience any downtime, they'll credit you for it. And if your miners aren't profitable at the moment, simply pause them with no penalties. When you're ready to upgrade or adjust your setup, their exclusive marketplace provides a seamless way to resell your equipment. Join me and many satisfied miners who have simplified their Bitcoin mining journey. Visit SimpleMining IO Preston to get started today that's SimpleMining IO Preston to get started today with simple mining. They make it simple. Ever notice how smart investors hedge against tail risk, but almost never talk about financial repression? Here's the uncomfortable truth. It doesn't matter how careful you build your portfolio, because if the rules around your money can change overnight, you're vulnerable. Just ask the Canadian truckers whose bank accounts were frozen, or Cuban families whose remittances were hijacked by state banks. Or citizens in dozens of authoritarian countries watching their life savings evaporate under hyperinflation. These aren't isolated incidents, they're part of a global pattern. That's why the Human Rights foundation publishes the Financial Freedom Report, a weekly newsletter that tracks how governments weaponize money to control people and how Bitcoin is helping individuals resist financial repression. If you care about sound money, personal sovereignty and Financial Freedom, HRF's Financial Freedom Report is essential reading. This is a report that I'm personally subscribed to and learn a ton from. Sign up for free@financial freedomreport.org that's financial freedomreport.org Smart investors don't just watch the Fed, they watch the world.
- [22:58]
D
One of the biggest takeaways from studying billionaires is this long term wealth isn't just built through investing. It's built by building expertise, leveraging opportunities at scale, and aligning yourself with platforms that help you grow. That's why we're excited to tell you about an opportunity with Intuit, the maker of TurboTax and QuickBooks. Intuit's expanding its best in class network of tax and bookkeeping experts. This is a chance to be a part of a platform that's redefining how expertise and technology come together to power prosperity. As an Intuit expert, you can work on site or virtually on a flexible schedule and build a personalized career path. Whether you want to work full time, part time or just supplement your income, you'll get support from a seasoned tax team and access to Intuit Academy, a free, self paced program that helps you unlock new opportunities in the tax and bookkeeping industry. It's a rare combination of flexibility, community and career growth, all backed by a brand that's trusted by millions. For a smart move with long term upside, head to intuit.comexpert to apply now or learn more. That's I n t u I t.com.
- [24:08]
Pierre Rochard
Expert all right, back to the show.
- [24:11]
Jim Chanos
Pierre, wouldn't you say it's more a forward looking expectation of what you think bitcoin's going to do at the root of all of this versus how Jim's may be seeing it?
- [24:20]
Pierre Rochard
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 M nav is rich. If we think that Bitcoin is 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.
- [24:50]
Jim Chanos
Jim, would you agree with that?
- [24:51]
Preston Pish
I would agree.
- [24:52]
Pierre Rochard
Again in theory the problem becomes in.
- [24:55]
Preston Pish
Practice and we can add to that the additional now we've been talking about the universe of Bitcoin and microstrategy 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 MeToo 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 MicroStrategy's 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? And of course, the proof in the pudding is that we're seeing that right now by the day, you know, coffee shops in Spain, moribund 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. It's really been happening in the last four or five weeks.
- [26:17]
Jim Chanos
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 in market cap size relative to microstrategy strategy, 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 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 Meta Planet and we look at the size of Meta Planet and how fast they're expanding their treasury, you look at their M Nav 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 take attention away from MicroStrategy and somewhat collapse their multiple over their M Nav? Because the market loses. And this is obviously over the coming five or ten 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? And Jim, am I explaining this kind of in what you're.
- [27:30]
Preston Pish
Yeah, well, your question first and then I'll go, yeah.
- [27:34]
Pierre Rochard
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. It's what Treasury Secretary Scott Bessant 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. Where does it stop being profitable? Where do we have a kind of convergence to a 1x M 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 1x 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, 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 1x m nav 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 Saylor 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 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. 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 don't know where it shakes out. It seems like he's got quite a lead.
- [30:19]
Preston Pish
I'll make one side note before I respond. So when I gave the M Nav trade at our investment conference, we have a stock picking conference every year, a contest every year in 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. 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 any given time for what's out there. So with that said, just want to give some practical numbers kind of for people listening or viewing to consider. So I still believe the most speculative retail overall stock market I've ever seen was really the first six months of 2021. And that includes crypto, but also included NFTs. And most importantly, from my perspective as an equity guy, SPAC. SPACs raised a billion dollars a night in the first quarter of 2021. They raised about 90, 90 billion from January 1st to March 31st. 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 MNA 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. 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 broaden 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 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.
- [32:37]
Pierre Rochard
To my knowledge, the plurality of those have commitments of dollars, 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 M Nav expanding due to a bullish bitcoin market due to imitators entering than there is of its M Nav trending down due to too much competition in the equity markets. And so that's. When I Look at the 2X 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 before coming back to two. And that seems far more likely than a crash in Bitcoin causing the M Nav to compress.
- [33:38]
Preston Pish
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. All right? I mean Bitcoin can go up and you could still lose money on the MNEV being long microstrategy relative to Bitcoin. 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 microstrategy of NAV on top of everything else.
- [34:05]
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 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 catalysts for what has driven down M Nav in the past, it's less volatility, which I think gets you down to a 2x and then really a bear 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 companies will be insufficient to drive down MSTR's Mnav.
- [34:53]
Preston Pish
Well, keep in mind, MSTR is not being inactive doing this themselves. Right. I mean he just tapped the equity ATM again a week ago for half 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.
- [35:13]
Pierre Rochard
We could eventually have the US 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. And so I think that there's going to be a lot of big buyers over the coming years.
- [35:31]
Preston Pish
That's the ultimate irony, right? Bitcoin 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 going to be very difficult for the US Government to really turn its back on the reserve currency and the seigniorage that it has. 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 going to happen.
- [36:03]
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. One is raise interest rates. So if Chair Powell came out and raised interest rates to be competitive with Saylor's Perpetual Preferreds. Right. Let's get interest rates up to 10%, then that would, I think materially deteriorate. The prospects for MSTR2 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. That would again create obvious problems for MSTR3, 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.
- [37:19]
Preston Pish
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 Bitcoin. Let's take a quick break and hear from today's sponsors.
- [37:42]
D
As a founder, you're moving fast, whether that's towards product market fit, your next round or your first big enterprise deal. But with AI accelerating how quickly startups build and ship, security expectations are higher than ever. Getting security and compliance right can unlock growth or stall it if you wait too long. With deep integrations and automated workflows built for fast moving teams, Vanta gets you audit ready fast and keeps you secure with continuous monitoring as your models and customers evolve. I love Vanta's commitment to saving companies time and money. As a recent IDC white paper found that Vanta customers achieve $535,000 per year in benefits and the platform pays for itself in just three months. Go to vanta.com billionaires to save $1,000 today through the Vanta for Startups program and join over 10,000ambitious companies already scaling with Vanta. That's V a n t a dot com billionaires to save $1,000 for a limited time Are you struggling to stay focused? Maybe your eyes are sore from staring at screens all day? If you're looking for something that can help you really hone in your work without all the distractions, Remarkable the Paper Tablet Might be just what you're looking for so what exactly is a paper tablet? In short, it's everything you love about paper. But with the power of modern technology, Remarkable just released their third generation paper tablet, Remarkable Paper Pro. It's thin, minimalist and feels just like writing on paper, but comes with powerful digital features such as handwriting conversion, built in reading, light productivity templates, and more. And here's the best part. Remarkable's mission is all about helping you think better. That means no apps, no social media and no distractions. Just pure focus. Whether you're in a meeting or deep in a creative session, this device is built to keep you in the zone. They even offer a 100 day satisfaction guarantee so you can try it risk free. Head over to remarkable.com to learn more and grab your Paper pro today. That's remarkable.com picture this. It's midnight. You're lying in bed, scrolling through this new website you found and hitting the Add to cart button on that item you've been looking for. Once you're ready to check out, you remember that your wallet is in your living room and you don't want to get out of bed to go get it. Just as you're getting ready to abandon your cart, that's when you see it. That purple shop button. That shop button has all of your payment and shipping info saved, saving you time while in the comfort of your own bed. That's Shopify. And there's a reason so many businesses, including mine, sell with it. Because Shopify makes everything easier from checkout to creating your own storefront. Shopify is the commerce platform behind millions of businesses all around the world and 10% of all e commerce in the US from household names like Mattel and Gymshark to brands like mine that are still getting started. And Shopify gives you access to the best converting checkout on the planet. Turn your big business idea into reality with Shopify on your side and thank me later. Sign up for your $1 per month trial and start selling today@shopify.com WSB that's shopify.com WSB.
- [41:05]
Pierre Rochard
All right, back to the show.
- [41:07]
Jim Chanos
Jim, if the government would. Does that really cause issues for your fundamental thesis with the MNAV on MicroStrategy?
- [41:14]
Preston Pish
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, is a 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 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.
- [41:55]
Pierre Rochard
So to kind of take it back to historical MNAF or mstr, what would you say would be the catalyst that caused it to expand from 1.2 in January 24th to a peak of, let's say, three and a half in November?
- [42:11]
Preston Pish
Yeah, I think euphoria over the Trump election.
- [42:15]
Pierre Rochard
But he was not elected yet in January when the expansion began. That first leg of the expansion was February, March with the.
- [42:24]
Preston Pish
We've gone up to three, I think, in March. Of that.
- [42:26]
Pierre Rochard
Yeah.
- [42:27]
Preston Pish
Of that year. Yeah. And then came back down and then really took a leg up in the fall.
- [42:31]
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.
- [42:41]
Preston Pish
Correct. But again, I think that that's fine. I wasn't involved then, so. Great. 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 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.
- [43:08]
Pierre Rochard
I guess my point is that I think that the catalyst for the expansion of the M Nav was the bitcoin price increasing and that creating forward expectations on upward volatility skew. And so to me, the primary catalyst for where M Nav 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.
- [43:44]
Preston Pish
All right, well, I'll fundamentally disagree with that last point. More supply will not allow increased prices in the form of increased mnf.
- [43:53]
Jim Chanos
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. Needs in order to buy more Bitcoin. That in Michael's mind is compounding at, call it 40 to 50% 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, he's working to amplify it. Because 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. So you could make the argument that he is actually working to expand M Nav. 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.
- [44:58]
Preston Pish
I can't disagree with the actual aspects of what you're saying. I can disagree with the fact that. That it's not material yet. Right. It's a very small part of the total enterprise value. If he can continue to issue preferreds at 8 to 12% and there's an unlimited appetite and he can raise tens of billions of dollars at a go, then that's an interesting point. I could argue that the M Nav 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 M Nav as well. I would point out the MNAV has decreased slightly since the preferred program has geared up since the end of May.
- [45:40]
Jim Chanos
In adjusted terms or in just traditional.
- [45:43]
Preston Pish
Regular?
- [45:44]
Jim Chanos
Regular, yeah.
- [45:45]
Preston Pish
So so far we're not seeing the torque effect onto the M Nav spread 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%, are you really expecting bitcoin to compound at that rate of return? A lot of bitcoin people think that's what's going to happen. I'm ambivalent of 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 I'm open to the idea.
- [46:29]
Pierre Rochard
Yeah, I think the market for them will expand and that the recent activity on the M Nav 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 Saylor's, 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. 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 keys, not your bitcoin guys.
- [47:31]
Jim Chanos
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 and that the listener will enjoy. So go ahead, Jim. Do you want to go first or Pierre? Yeah, go ahead, Jim.
- [47:51]
Preston Pish
I'll go first. Look, I think Pierre and I might agree on more things than we disagree, which I hope the listener and the viewer understands. 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.
- [48:08]
Pierre Rochard
I would think that the biggest, maybe.
- [48:10]
Preston Pish
The biggest difference we have, with the exception of agreeing on agency risks, 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 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 when 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. And I think that's going to ultimately keep m both depressed and possibly be a very important catalyst for their decline.
- [48:52]
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. 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 spent the past three years arguing with Senator Elizabeth Warren about bitcoin, and she never engaged with me on. So 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.
- [49:36]
Jim Chanos
I agree.
- [49:37]
Preston Pish
And I agree with that. I agree. It's been really. It's been a lot of fun and I've enjoyed the debate.
- [49:43]
Jim Chanos
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 ADIQ 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?
- [50:05]
Preston Pish
You can do that.
- [50:09]
Jim Chanos
Okay, here's where 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 and 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 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. 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. And I'm just kind of curious from your perspective, you've been in financial markets for decades.
- [51:26]
Preston Pish
Yeah.
- [51:27]
Jim Chanos
What is this social experience like compared to these other like Enron type scenarios in the past?
- [51:35]
Preston Pish
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 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 90s might surprise some of your viewers and listeners as to, you know, what's on social media today. 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, is that in my world, this is one trade of many. Right. You know, Enron 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 in those and nobody knows those. And conversely, Tesla, our most celebrated 10x on it, which we had in the late 90s in the form of a B 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 unique part of their portfolio and then project that onto 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 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.
- [53:28]
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.
- [53:51]
Preston Pish
Well, thank you. And again, this was very enjoyable. I enjoyed doing it and really appreciate, Preston, you putting this together.
- [53:58]
Pierre Rochard
Appreciate it.
- [53:59]
Jim Chanos
Jim and Pierre, this was fun. And, you know, we'll let the market decide. We're obviously, you know, bitcoin bull, and I'm an MSTR bull, so we'll see what happens. And I hope everybody enjoyed the conversation. Thank you both for making time. Really appreciate it.
- [54:15]
Preston Pish
A lot of fun. Thank you.
- [54:16]
Jim Chanos
All right, see you, Jim.
- [54:17]
Pierre Rochard
Thank you. Have a great day.
- [54:18]
Preston Pish
Big fan, guys. Thanks.
- [54:20]
Pierre Rochard
Thank you. Have a good day.
- [54:22]
Preston Pish
Thank you for listening to tip. Make sure to follow bitcoin fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com this show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.