- Jim Chanos tore into crypto after Sam Bankman-Fried’s FTX exchange implosion.
- The short seller compared the crypto crash to the bursting of the dot.com bubble.
- Chanos expects the S&P 500 to plunge, Tesla’s growth to slow and Twitter to distract from Elon Musk.
Jim Chanos has trashed cryptocurrencies after Sam Bankman-Fried’s FTX became the latest industry player to crash into bankruptcy.
The famous short seller and boss of Chanos & Company compared the ongoing crypto crash to the bursting of the dot-com bubble on Bloomberg’s “Odd Lots” podcast this week.
Chanos warned that the S&P 500 could plunge another 55% before hitting bottom. He also predicted Tesla’s growth would slow as rivals catch up and it runs out of customers, and suggested Twitter could be a costly distraction for new owner Elon Musk.
Here are Chanos’ top 10 quotes, slightly edited for length and clarity:
1. “Different parts of speculation are being wrung out of this market one by one. We have been floundering right in the middle of our second crypto crisis. On top of that you have the tech complex melting away. whether it’s crypto, whether it’s NFT, whether it’s SPAC, the posters of this speculation are basically being burned at the stake and eliminated.”
2. “All the use cases for crypto kept changing. It was going to be an alternative currency. It was going to be a store of value. was really just a speculative asset class with a huge cost structure built around it. The idea for the crypto community was really, ‘How can we extract the most fees from unsuspecting investors?'”
3. “When you need fiat, that’s when people are most scared and fear lurks in the markets. Governments can not only enforce contracts and try fraud, but they can act as lenders of last resort and establish deposit insurance – which is exactly what everyone is looking for when people are worried about getting their money back.”
4. “Fraud generally thrives in a bull market. When markets go down and people become a little more suspicious, since most frauds require new capital to continue, they tend to be exposed. Madoff en December 2008 is a good example.. Enron and WorldCom and Tyco are also in this class.In this cycle, I think crypto is probably going to be up there.
5. “Regulators are archaeologists, not detectives. Asset Prices are both the most dedicated defense attorney and the toughest prosecutor in financial fraud. everybody makes money. It’s only when people start losing money that you start to get a public outcry of ‘throw the rascals in jail’.”
6. “To me, this sounds a lot more like the dot-com era on steroids than the prelude to the global financial crisis. That’s a pretty bad market effect for stock-type investors, much like the dot-com era, but I don’t see contagion through credit markets.” (Chanos noted that the crypto industry is relatively small and largely separate from the traditional banking and payment system.)
7. “If this were a bottom, it would probably be the most expensive bottom in modern financial history. Most bear markets have bottomed somewhere between nine and 15 times previous earnings peaks If we think earnings are peaking right now, nine to 15 times would be 1,800 to 3,000, 3,100 on the S&P We’re a long way from that (Chanos’ comments suggest the S&P 500 could fall up 55% from its current level of around 4,000 points.)
8. “Tesla has huge gross profit margins of 30%, while the rest of the industry is lucky to get 15% or 20%. We don’t think that’s sustainable. Investors are always looking for growth 40% to 50% for the next decade, which roughly means Tesla will be the entire auto industry in the early 2030s. We just don’t think that’s going to happen. (Chanos, who is short of Tesla, pointed to the relatively small size of the luxury car market and growing competition from traditional automakers.)
9. “I don’t think it was worth $44 billion. I think he thinks it probably wasn’t worth $44 billion. I’m scratching my head at some of the initiatives. It’s probably going to take a disproportionate amount of its focus on the short term.” (Chanos was talking about Musk’s recent acquisition on Twitter and the first changes he made to the social media company.)
10. “Some of these business models were questionable from the start. Take a look at ride-sharing or food delivery. These businesses have been around for 10 or 15 years, and they haven’t found a way to make a profit. They are not scalable, DoorDash actually has higher losses per order now than a few years ago.
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