According to Financial Times News, short seller Jim Chanos just closed his pairs trade position that was long bitcoin while shorting MicroStrategy common stock. The trade proved highly successful as MicroStrategy’s share price premium collapsed from nearly 3 times net asset value last November to around 1.2 times currently. While bitcoin has risen approximately 30% over the past year, MicroStrategy’s stock has fallen more than 25%. Chanos didn’t disclose his profits but clearly walked away with substantial gains. The trade specifically targeted what he viewed as MicroStrategy’s unsustainable premium relative to its bitcoin holdings.
The Obvious Trade That Wasn’t
Looking back, Chanos’s bet seems like a no-brainer. But shorting anything carries real risks, and shorting a Michael Saylor-led company adds extra layers of danger. The financing costs from stock borrow are one thing, but the real nightmare scenario was a short squeeze. Remember what happened to Melvin Capital during the GameStop saga? That could have easily happened here given Saylor’s cult-like following and his relentless ability to rally retail investors. Chanos basically bet that cooler heads would prevail and recognize MicroStrategy as an overpriced bitcoin wrapper.
MicroStrategy’s Structural Problem
Here’s the thing about MicroStrategy’s business model – it’s fundamentally broken. The legacy software business generates almost no cash flow, leaving the company completely dependent on capital markets to fund its bitcoin buying spree. They’ve been issuing common stock like crazy, which dilutes existing shareholders and puts downward pressure on the price. Then they layered in over $8 billion in convertible bonds, which come with their own set of problems. If the stock doesn’t perform, those bonds need to be repaid in cash. With major maturities coming in 2028, Saylor actually stopped issuing new convertibles late last year.
The Funding Treadmill
So what’s the solution? MicroStrategy just announced its fifth perpetual preferred stock offering, this time in euros. But preferred stock from a junk-rated company isn’t exactly an easy sell. The latest euro issue had to be priced at 80% of face value, giving buyers a whopping 12.5% yield. And those coupon payments, combined with convertible bond interest, now total over $700 million annually. Since the company doesn’t generate operating cash flow, it has to issue more equity just to service its existing debt and dividends. It’s a vicious cycle that keeps putting pressure on the common stock.
The Bitcoin Paradox
Whenever someone points out the cash flow problem, the immediate response is “but they have $70 billion in bitcoin!” On paper, that looks comforting. But using bitcoin to pay dividends or debt would completely undermine the HODL narrative that Saylor has built his entire brand around. The market would likely sell ahead of any liquidation, creating a self-fulfilling prophecy. So that bitcoin stash isn’t ordinary collateral that can be easily liquidated without consequences. Chanos identified this fundamental disconnect and had the nerve to act on it. By closing now, he’s signaling that the easy money has been made. But the bigger question remains: is MicroStrategy really “amplified bitcoin” or just an expensive, complicated way to achieve worse returns than owning bitcoin directly?
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