Bitcoin

April

Investment firm Kerrisdale Capital is shorting MicroStrategy stock, which it <a href="https://www.kerrisdalecap.com/wp-content/uploads/2024/03/MicroStrategy-MSTR.pdf" target="_blank" rel="noopener noreferrer nofollow">said</a> is trading at an “unjustifiable premium” to Bitcoin.
Cointelegraph spoke with Sahm Adrangi, chief investment officer at Kerrisdale Capital, to better understand why Kerrisdale believes MicroStrategy stock is overpriced.
Adrangi boiled the MicroStrategy business model down to six words.
“They own X amount of Bitcoin,” he said.
For Adrangi and his Kerrisdale colleagues, that fact alone did not justify the price of MicroStrategy. According to its March report, MicroStrategy stock indicates a Bitcoin (<a href="https://cointelegraph.com/bitcoin-price" rel="noopener noreferrer nofollow">BTC</a>) price that is two and a half times the reality.
Adrangi explained: “The software business is worth a billion, maybe a billion [point] five, somewhere in between — it’s not worth very much. Michael Saylor has bought all this Bitcoin [...] If he wants to buy more Bitcoin, he issues $1 billion of debt and he buys $1 billion more Bitcoin. It doesn’t increase the enterprise value of the company.”
<blockquote data-ct-non-breakable="true">
 “Bitcoin prices have to go up for the value of the company to increase. If they go down the value of the company goes down. The company should be trading at the value of Bitcoin. Our argument is ‘go short MicroStrategy, go long Bitcoin.’”
</blockquote>
<h2 data-ct-non-breakable="true" id="michael-saylor-s-bitcoin-strategy">Michael Saylor’s Bitcoin strategy</h2>
MicroStrategy first started buying Bitcoin in 2020 under the leadership of Michael Saylor, its executive chairman and co-founder.
Saylor is one of Bitcoin’s staunchest advocates, and his Bitcoin strategy has led MicroStrategy to hold significant quantities of Bitcoin. On June 20, MicroStrategy <a href="https://cointelegraph.com/news/microstrategy-800-million-convertible-note-offering-bitcoin" rel="noopener noreferrer nofollow">bought an additional 11,931 BTC</a> for $786 million, bringing the total number of Bitcoin in its possession to 226,331 BTC.
In total, MicroStrategy has spent $8.3 billion purchasing Bitcoin. The value of the Bitcoin it holds is $14.6 billion.
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That may look like a healthy unrealized profit to a layman, but Adrangi is less than impressed.
“There’s not much in terms of MicroStrategy’s history that demonstrates it’s especially good at buying low and selling high. Ultimately [Saylor] just buys Bitcoin at different times. And you can buy Bitcoin at different times,” Adrangi said.
MicroStrategy now holds 1% of all Bitcoin.
<h2 data-ct-non-breakable="true" id="kerrisdale-capital-s-bitcoin-strategy">Kerrisdale Capital’s Bitcoin strategy</h2>
Kerrisdale Capital is an investment company known for publishing research and shorting stock. These two aspects of the company often go hand in hand as Kerrisdale publishes skeptical reports on the stocks it shorts.
Kerrisdale has previously shorted companies in biotechnology and the traditional mining sector but is now taking increased interest in cryptocurrency.
Since shorting MicroStrategy, Kerrisdale has placed Bitcoin mining firms in its sights. In a <a href="https://cointelegraph.com/news/us-bitcoin-miners-kerrisdale-market" rel="noopener noreferrer nofollow">June report that Cointelegraph previously covered</a>, Kerrisdale said it was shorting mining firm Riot, which it claimed was among the “worst business models for a public company we have ever encountered.”
Kerrisdale’s strategy brought significant criticism and mockery from within the crypto community, which has demonstrated a protectionist attitude to both firms.
On X, Michael Sullivan captured the mood:
<figure data-ct-non-breakable="true"><img src="https://s3.cointelegraph.com/uploads/2024-06/777aa0f7-a6c3-4bb4-95ea-39f13c1c587a.png" alt="" title="">
 <figcaption style="text-align: center;">Source: <a href="https://x.com/SullyMichaelvan/status/1798381942439907641" target="_blank" rel="noopener noreferrer nofollow">Michael Sullivan</a>
 </figcaption>
</figure>
Some have even taken to gloating every time Riot or MicroStrategy stock rises.&nbsp;
Adrangi, however, remains confident in Kerrisdale’s research and conclusions.
“Ultimately, over the long term, if we’re right about our thesis, the price action will work in our favor,” he said.
Cointelegraph asked Adrangi over what time period a shorting might yield results.
“It can take multiple years,” he added.
<h2 data-ct-non-breakable="true" id="a-note-of-caution">A note of caution</h2>
The crypto community holds endless scorn and vitriol for those who attack its own. To outsiders, that passion can also be to its detriment, as it is hard to know which of its proponents argue from a position of logic and which from a position of pure tribalism.
Zackary Morris, a research analyst at Bitcoin financial services firm Onramp, would seem to be in the former category. Morris, an avowed fan of Kerrisdale who has followed their short ideas previously, has also found reason to criticize its MicroStrategy proposition.
As Morris <a href="https://www.linkedin.com/pulse/response-kerrisdales-microstrategy-thesis-zackary-morris-huahc/" target="_blank" rel="noopener noreferrer nofollow">wrote</a> in an April LinkedIn post: “It [MicroStrategy] currently trades for 250% of the value of its bitcoin holdings. It traded for the value of its bitcoin holdings as recently as January.”
As Morris sees it, MicroStrategy could just as reasonably blow up to 500% of the value of its Bitcoin holdings.
“Maybe fundermentalsss [sic] are not the best place to start formulating a thesis on MicroStrategy,” wrote Morris. “To me, arguing that something is not tethered to reality and then betting on it becoming tethered to reality is not a good strategy.”
<h2 data-ct-non-breakable="true" id="bitcoin-a-get-rich-quick-scheme">Bitcoin, a get-rich-quick scheme</h2>
Adrangi and Kerrisdale have previously adopted a “go short MicroStrategy, go long Bitcoin” mantra, which might suggest the company thinks Bitcoin is a wise investment.
But Adrangi disabused Cointelegraph of any such notion.
“I’m just personally not sympathetic for all of this energy usage for the purpose of fueling speculation over this made up fantasy land asset,” he said.
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“At the end of the day, Bitcoin is just one big get-rich-quick scheme. People come up with all sorts of libertarian rationales, and they complain about The Fed and the monetary system and transaction fees,” said Adrangi.
<blockquote data-ct-non-breakable="true">
 “In my opinion, it’s all BS. It’s just a bunch of people who want to get rich so they can buy lambos and watches and they’d rather speculate on Bitcoin versus, you know, go get a real job.”
</blockquote>
Cointelegraph reached out to MicroStrategy for comment but did not get a response by publication.

Why are traders shorting Michael Saylor’s MicroStrategy?

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