Jim Chanos discusses his long Bitcoin / short MicroStrategy (MSTR) arbitrage trade, betting on the convergence of MSTR premium and BTC discount. MARA, RIOT, and CLSK also hold significant BTC. Elevated short interest in these stocks indicates high bearish sentiment.

• On the latest episode of “Risk & Return”, hosted by Charlie Gasparino and Bob Sloan, special guest Jim Chanos spoke about his long Bitcoin / short MicroStrategy (MSTR) arbitrage trade.

• In short, Chanos is essentially betting that the MSTR premium / BTC discount will eventually converge, realizing a profit.

• MSTR is not the only company deploying this playbook of accumulating Bitcoin cryptocurrency on their balance sheet.

• MARA (92%), RIOT (64%), and CLSK (48%) are three US companies that have significant BTC holdings as a % of market value similar to MSTR (62%):

Source: https://bitcointreasuries.net/

Short Interest, a few observations:

• Over a quarter (25%+) of each companies free float is currently sold short, which typically indicates bearish sentiment is high.

• Despite the elevated SI % Float on each, the financing costs are “cheap/general collateral” due to sufficient borrow liquidity still available. Facilitated by issues of debt and/or equity to raise capital to add Bitcoin to its own treasury.

• An informed investor should take notice of the elevated SI Utilization, which is a metric to gauge supply constraints on the borrow, which can in turn lead to a rapid increase in financing/carry costs, cutting into alpha.

• Also note that MARA has 2x more notional short dollar exposure compared to CLSK and RIOT, with all three having ~$3 billion in aggregate on the short side of the trade currently.

• Taking a look at the 52-week SI % Float trend, all 3 shorts have converged to 25-30% of float over the time period, with CLSK displaying the largest increase.

The long Bitcoin / short MicroStrategy (MSTR) trade highlights the potential for profit through arbitrage. High short interest in MARA, RIOT, and CLSK suggests bearish sentiment, but investors should monitor financing costs and supply constraints.

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