3rd August 2022 > > MicroStrategy.

tl;dr

Another look at MicroStrategy (MSTR), for educational and informational purposes only.

Market Snap

Market Wrap

Some extreme moves in 10 year rates accompanied by a growing short base in BTC.

Occasional Series – Technical Analysis (TA)

From CryptoPotato’s TA:

“The 4-Hour Chart

After experiencing a bearish expansion rally, the price has formed a well-known classic pattern called a flag. After testing the lower edge alongside the $19K support level, the price has finally initiated a short-term rally and attempted to break the upper boundary. However, BTC failed to overtake the flag’s upper threshold and is slightly plummeting.”

Can anything ever “slightly plummet”?

Curious Cryptos’ Commentary – MicroStrategy (MSTR)

Michael Saylor, CEO of MicroStrategy (MSTR) has been a most vocal proponent of BTC.

MSTR has been accumulating BTC for its balance sheet on a regular basis since August 2020, using a combination of free cash flow, corporate bonds, convertible bonds, and private loans from banks. In total, MSTR declared holdings of 126,699 BTC on its balance sheet as of 28th June 2022, worth approximately $3bn today.

The acquisition cost of those BTC has been approximately $4bn leading to an impairment charge on the balance sheet of MSTR of around $1bn.

On the 16th June 2021 and 28th October 2921, the CCC reported on the anomalies of accounting rules relating to “indefinite-lived intangible assets”, a categorisation that is generally accepted as including BTC, and probably many other cryptos.

I would urge you to go back and read both of those commentaries to be better informed of what might appear on the face of it to be a minor and arcane topic, but it is in fact one which is a strong impediment to corporations moving significant amounts of their balance sheet into BTC.

In short, the current rules demand that any impairments are immediately reported (fair enough) but that any improvements are kept hidden until BTC holdings are sold. This is a lop-sided approach and will not stand the test of time, but for now these are the rules.

…

We first looked at MSTR on 31st December 2020, the date on which the CCC (and incidentally Morgan Stanley) made an initial investment.

At the time BTC was trading at $29k and MSTR at $391. Current pricing shows that BTC is down 21% since then and MSTR is down $29%.

I believe – purely a personal opinion and not investment advice - that MSTR is a leveraged play on the price of BTC, and so will underperform when BTC prices are down, and will outperform when BTC prices are up. Indeed, just two months after the CCC’s initial investment, BTC was up 34% and MSTR up 104%.

…

Michael Saylor has resigned his role as CEO to step up to Executive Chairman:

“As Executive Chairman I will be able to focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives, while Phong will be empowered as CEO to manage overall corporate operations.”

MSTR’s strategy of accumulating BTC is all set to accelerate in the near future, increasing my personal appetite to add BTC risk to my portfolio in the form of MSTR shares.

…

What is even more compelling is that Wall Street does not agree.

Short bets on MSTR stock have been increasing. According to Bloomberg:

“A record 51% of MicroStrategy’s available shares are currently sold short, carrying a notional value of $1.35 billion, according to financial analytics firm S3 Partners. The all-time high of 4.73 million shares shorted has soared by 1.2 million shares over the past 30 days alone, S3 says”.

With a market cap of just over $3bn, and total liabilities approaching a similar figure, about 50% of the value ascribed to the equity of MSTR is due to BTC holdings.

If one was negative about cryptos (and I accept that there are some of you out there) then a short on MSTR appears to be a no-brainer.

But as was illustrated by both Tesla and GameStop, the exit window for shorts when market sentiment turns is very tiny indeed. The hedge funds and investment banks who are betting against BTC using MSTR as a proxy will have very tight stop losses. When triggered, they close at any cost.

There is rarely a more enjoyable feeling than being long during a violent, rapid, and brutal short squeeze.