Nailing the Analog: MicroStrategy Sued Again

District of Columbia Suing MicroStrategy Founder Michael Saylor for Tax Fraud

The District of Columbia is suing MicroStrategy (MSTR) founder and executive chairman Michael Saylor for allegedly never paying any income taxes in the district in the more than 10 years he has lived there, Attorney General Karl A. Racine announced in a tweet on Wednesday.

In addition, Racine tweeted that his office is suing MicroStrategy “for conspiring to help him evade taxes he legally owes on hundreds of millions of dollars he’s earned while living” in Washington, D.C.

See this post for my discussion of MicroStrategy as a cyclical signal: Cycles: MicroStrategy Back Again. A stock that was a brief darling of the 1990s dotcom bubble, then crashed amid accounting troubles. It hibernated for 20 years, then returned for a brief run during the cryptocurrency bubble and is in legal trouble again as the bubble bursts. Amazing. Little hints of history rhyming are sometimes far more information laden than they appear at first glance.

Great Signal for a Top: MSTR Doomed Again

I've had a very nice year shorting growth stocks and assorted trash. Microstrategy hasn't cratered yet, but it figured into the overall picture.

Cycles: MicroStrategy Back Again has all the info. MicroStrategy stock soared into the top of the dotcom bubble, they bought a Superbowl ad, and then they imploded on missed earnings and restatements. At the top of the crypto bubble, CEO Saylor has even more attention than he did in 2000, the stock performance is similar and the stock itself is supported by a similarly flimsy model. In 2000, they were hit along with the sector when regulators became critical of their accounting practices. This time there isn't any claims of fraud or skirting accounting rules that I've seen. Instead, it's a straight leveraged fund model. MSTR issues debt to buy BTC bitcoins. If BTC goes up they make money. If BTC goes down?

MicroStrategy Announces First Quarter 2022 Financial Results

Loss from Operations and Net Loss: Loss from operations for the first quarter of 2022 was $170.0 million compared to $183.2 million for the first quarter of 2021. Net loss for the first quarter of 2022 was $130.8 million, or $11.58 per share on a diluted basis, as compared to $110.0 million, or $11.40 per share on a diluted basis, for the first quarter of 2021. Digital asset impairment charges of $170.1 million and $194.1 million for the first quarter of 2022 and 2021, respectively, were reflected in these amounts.

Interest rates are going up and MSTR has impaired its balance sheet. All it would take to crater MSTR's stock is a drop in Bitcoin. It doesn't have to go to zero either, any substantial drop below their buy price will hammer their balance sheet. In fact, if BTC loses the $24,000 level which is all but assured in my opinion:

MSTR in 2000. Pay attention to the blue horizontal at the gap.

Here's a zoom out and then zoom in to now.

I see stock price history repeating. How about you?

Cryptop

Crypto Stocks Look Ready to Sink

The downside is open if they want to go.

Crypto Complex Breakdowns

I saw that the average stock in the market is down 38 percent from their high. Well, take a stock like SI. it is down 56 percent as of today. It still has an 80 percent drop ahead of it because the entire bubble will be reversed. The even better good news for bears is that the major indexes are still relatively high and VIX is still low.

Bearish BTC Puts

These two remain my favorite targets for bearish crypto.

These ones will trade in the same direction as the above two:

BTC\

Same Stocks, Same Chart, Same Bubble

Occam's razor says top.

BTC No Change in Outlook

Good spot for taking short positions. If it were a stock I'd say low risk, but since BTC can jump sevreal thousand dollars in a day and trades over the weekend, and if it breaks resistance it would probably run hard, taking a short position via stocks is not a very low risk prospect. That said, I'm shopping for stocke-related puts.

Below are some related stocks, all sporting similar patterns.

BTC Waterfall Decline Approaches

My first target for this BTC bear market is $20,000, with a firmer bottom in the range of $12,500 to $14,000. There was support at the $30,000 level, but I think this is a bigger move. BTC has already failed at former support,now resistance at $42k.

I am not shorting BTC. I'm more interested in BTC secondary plays such as MSTR and RIOT, but what I'm really looking at is BTC as a thermometer for speculation and what that implies for stocks. Tertiary plays such as Nvidia and beyond in the Nasdaq, such as Apple and Amazon.

On to the charts. Here's BTC. Everyone was focused on $30k support for good reason: the vast majority of BTC buyers via the market this past year have bought above $30k. Volume in Q1 was 267 million and Q2 is already 159 million BTC. That makes for 426 million transactions above $30k. I have to go back to the 2017 Q4 peak in BTC to accumualte enough volume to exceed what has traded since December. More than half of BTC buyers over the past 3 years paid more than $30k.

Both the chart pattern price support levels are simialr to the 2017 top.

The 2017 peak was in the context of a bull market in financial assets. BTC have never existed during a broad bear market. If BTC can go lower, let's look at the volume profile for a clue. Below I show the 3-, 5-, and 7-year time frames.

Lo and behold, the volume profile corroborates the green horizontal I have on the chart. There is strong support between the green and violet horizontals.

Summary

$30k was a tradable short-term support level

$20k is firm support for a major correction

$12.5k to $15k is support for a BTC bear market

Lower is possible in a broad bear market accompanied by a financial crisis on par with 2008 and March 2020. Perhaps the $1000 area could be tested in a deflationary panic. It would depend entirely on whether the government devalues the currency and if competing coins displace BTC as "digital gold." It depends on if the Tether bubble pops. See: Did Unbacked Tether Creation Manipulate Bitcoin Prices?

I hold BSV, a Bitcoin fork that makes micropayments possible. It can replace both Ethereum and BTC. Unlike other coins endlessly hyped as speculative trading vehicles, BSV is more preferred by developers building applications. (BSV is not listed on many exchanges because it calls itself Bitcoin and the exchanges claim this would confuse investors.) It is implementing the full vision of what digital currency should be. I'm speculating on its survivorship and emergence as the superior blockchain. I think it will get crushed along with everything if BTC collapses, but will add more on the way down.

Finally, here is BTC inverted. It looks like the mining charts I've been buying the past 2 years. If you think about the volume profile in reverse, there's lots of support down to $30k (up on the inverse chart). After that, it's a straight shot to $20k. There is some support there, but it isn't deep because after that, the well of buyers came in around $15 or lower.

The real way to acquire "diamond hands" is by paying a low price. The volume profile says the real diamond hands won't be tested until around $15k.

Update: Here's BSV. Unfortunately, falling BTC will take out the uptrend and probably send BSV down to around $50.