Kerrisdale Capital Shorts MicroStrategy, Calls Bitcoin Buying Spree a 'Fantasy Land Asset'
Summary:
Investment firm Kerrisdale Capital is shorting MicroStrategy's stock, arguing that it is overpriced relative to the value of its Bitcoin holdings. As per Kerrisdale's analysis, MicroStrategy's valuation suggests that Bitcoin is worth two and a half times its current price. Kerrisdale's CIO, Sahm Adrangi, believes CEO Michael Saylor's strategy of increasing the company’s Bitcoin reserves doesn't necessarily increase its corporate value. Adrangi also takes a critical view on Bitcoin, casting it as a speculative instrument rather than a serious asset class.
Kerrisdale Capital, an investment firm, holds a short position on MicroStrategy stock, arguing that its current market value exceeds any reasonable premium on Bitcoin that it could command. Sahm Adrangi, Kerrisdale Capital's CIO, asserts that the value of MicroStrategy, reduced to its simplest form, is tied purely to their Bitcoin holdings. For Adrangi and his team, this simple fact does not warrant MicroStrategy's current valuation. As per their recent report, they estimate that MicroStrategy's stock value suggests a Bitcoin price that is inflated by two and a half times of the actual value.
Adrangi's explanation points out that the company's software business may be worth around $1 to $1.5 billion, far below the total valuation of the company. CEO Michael Saylor's strategy of buying Bitcoin by issuing additional debt, Adrangi argues, does not contribute to a higher enterprise value. He points out that the company's value is directly tied to the Bitcoin price. If Bitcoin goes down, so does the value of MicroStrategy, and vice versa. Therefore, Adrangi strongly suggests going short on MicroStrategy and long on Bitcoin as a more profitable strategy.
Under the stewardship of Michael Saylor, their executive chairman, MicroStrategy began its Bitcoin buying spree in 2020. Saylor is a prominent Bitcoin proponent and it's under his guidance that MicroStrategy now owns a massive Bitcoin portfolio. As of June 20, MicroStrategy has reportedly purchased about $8.3 billion of Bitcoin, bringing its holdings to 226,331 BTC with an estimated value of $14.6 billion. Despite the seeming profit on the books, Adrangi is not convinced.
Kerrisdale Capital, a company notorious for producing research papers and shorting stocks, have built a reputation around their skeptical views on stocks. While they previously focused on traditional sectors such as biotechnology and regular mining, they've recently shifted their focus on cryptocurrency, also targeting Bitcoin mining firms like Riot. However, Kerrisdale's strategy has not been free from criticism and ridicule, especially from the crypto community. Despite the blowback, Adrangi remains confident about Kerrisdale's thesis and expects that it would eventually pay off, albeit over a longer term.
Regardless of the position one takes on the intense debates in the crypto community, it is crucial to discern the logical arguments from mere tribalism. Zachary Morris, a research analyst at Bitcoin financial services firm Onramp and previous follower of Kerrisdale's short tactics, has shared doubts about Kerrisdale's stance on MicroStrategy.
An interesting perspective put forth by Adrangi dismisses Bitcoin as a quick-money scheme, mainly fueled by speculation rather than a serious asset class. According to him, various libertarian arguments and complaints about the current monetary system serve as nothing more than excuses for speculative behavior rather than grounding in reality. MicroStrategy was contacted for comments on this issue but had not responded at the time of publishing.
Published At
6/24/2024 4:15:00 PM
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