- Jim Chanos trumpeted short sellers and diagnosed rampant fraud in the crypto space.
- The Kynikos Associates chief bemoaned the SPAC craze, and warned against buying Chinese stocks.
- Chanos compared crypto speculators to gamblers, but cautioned against directly shorting coins.
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Jim Chanos defended short sellers, warned of widespread fraud in the cryptocurrency space, and compared crypto speculators to gamblers during a recent episode of the Crypto Critics' Corner podcast.
The Kynikos Associates boss is best known for sniffing out fraud at companies such as Enron and WorldCom, then placing lucrative wagers on their stocks to fall. During the interview, he balked at the massive scale of the SPAC craze, advised against investing in China, and cautioned against directly shorting crypto.
Here are Chanos' 12 best quotes, lightly edited for length and clarity:
1. "I somewhat jokingly say I'm in the insurance business. A good short portfolio allows you to insure your long portfolio, and hopefully get a positive return."
2. "People take it personally when people in public markets express a difference of opinion by shorting stocks or bonds. But in the public securities markets, short sellers are the only group incentivized in real time to ferret out fraud. That's a crucial function in the marketplace."
3. "I've always joked that short sellers and journalists are financial detectives, and the regulators and law enforcement are financial archeologists. They'll tell you with great clarity what happened 10 years after the fact."
4 "I suspect that if and when this bubble completely bursts, the amount of stuff that's going to come out is going to shock people. We're already seeing it in the crypto space."
5. "We're going to look back at Sam Bankman-Fried's interview with Bloomberg as a watershed event. He said the quiet part out loud. It's all laid out for you right there by one of the crypto kings, that this is all really dependent on the asset prices going up. If the asset prices don't keep going up, this doesn't work."
6. "The way I would describe Tether, it's as if you're outside a door and the doorknob is red-hot to touch, the door itself is hot, there's smoke coming out from underneath the door, and yet they're telling you nothing is wrong inside the room." (Chanos added that Tether has refused to "open the door" and show nothing is wrong by conducting an audit. Tether told Insider in a statement that it has "withstood multiple black swan events in crypto, and has never refused a redemption in its history." Its bosses are "committed to and are working on an audit" but have struggled to secure assurance services in the crypto space, and the company is "leading the way in transparency by providing its quarterly assurance attestations.")
7. "Don't invest in things you don't understand. The siren song of investing in tokens or crypto coins or whatever, because someone told you this one's going to go up, is just simply like going to the casino. You're not investing, you're gambling in a less-than-zero-sum game."
8. "At one point in February, SPACs were raising $3 billion a night, which was equal to the US savings rate. There's never been anything like that, even in the IPO boom of the 1990s. We lost our collective minds in the end of 2020 and early 2021, and we're going to be paying for that for a while."
9. "This ecosystem is basically preying on the ignorant. The high-minded aspects of crypto and blockchain have been directed at extracting money from these people. Instead of this decentralized, financial nirvana, it's become a predatory junkyard. That's the real problem with it."
10. "Back in 2006 and 2007, we were very negative on credit and the real-estate markets, but we did not do the credit-default swaps that were highlighted in 'The Big Short.' We reasoned that if what we anticipated came to pass, our counterparties would go under, and we wouldn't get paid. The problem you have by being short the cryptos directly is if this crash comes to pass, the counterparties aren't going to be there."
11. "You're just playing with fire if you're investing in Chinese companies. It is an odd form of pseudo-capitalism where shareholders provide capital but get no return. It's just a mug's game. If you're an outside shareholder in China, you're just financing everybody else."
12. "This is all Kabuki theater. It's just a way to entice Western capital to go into China. But the capital never comes out." (Chanos said the Chinese court system doesn't recognize foreign ownership of local companies such as Alibaba, so outside investors have no recourse if management teams act against their interests.)
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