Home » MicroStrategy and the Four Stages of the Stock Cycle

MicroStrategy and the Four Stages of the Stock Cycle

MicroStrategy Inc. (MSTR) was one of the top success stories of the post-pandemic stock boom…

But we’ve actually never talked about it here in Stock Surge Daily.

Given how this story has developed, I have some thoughts on it I want to share with you.

If you’re not familiar with the company, MicroStrategy Inc. is a small-cap software company co-founded by a guy named Michael Saylor, the main character of this story.

The stock came to market in 1998. And like many software stocks, it went through a major boom and bust cycle between 1999 and 2002.

The stock recovered over the next few years but then largely went sideways for over a decade.

That was, until Saylor did something almost no one saw coming…

Big Bitcoin Bet

In August 2020, MicroStrategy disclosed that it had purchased 21,454 Bitcoin when it was trading for around $12,000 per coin.

That came out to about $250 million dollars worth of Bitcoin. 

At the time, Saylor proclaimed that Bitcoin is “a dependable store of value and an attractive investment asset with more long-term appreciation than holding cash.”

And keep in mind that this all started before the latest crypto bull market and all the fear over inflation, when the price was still well below its old high…

Weekly Chart of BTCUSD – Source: TradingView

Microstrategy made numerous purchases of Bitcoin during the move higher as well as through the latest drawdown.

As of April 2022, the company has spent a total of $3.97 billion to purchase 129,218 Bitcoin.

Four billion dollars! And the average cost per coin is roughly $31,000, which means that those holdings are now underwater.

When the price fell into the $25,000 range two weeks ago, there were serious discussions taking place about MicroStrategy potentially facing a margin call on its holdings.

And that brings us to the major mistake Saylor and the company made… They tied the future of their company to the value of Bitcoin.

Don’t Bet the Farm

Maybe that’s what they wanted and they just figured Bitcoin would keep going up.

It’s too bad they don’t know about the Four Stages of the Stock Cycle, which regular readers will be familiar with…

Just take a look at the four stages as Richard Wyckoff first laid them out…

Richard Wyckoff’s Four Stages of the Stock Cycle

Now, look at how MSTR stock performed during the latest crypto cycle…

Weekly Chart of MicroStrategy Inc. (MSTR) – Source: TradingView

The charts are not exactly the same, but the four stages certainly are. 

First, there was a lengthy consolidation stage that took place well before 2020 for many years before the company ever got involved with Bitcoin.

Second, MSTR saw massive tailwinds and entered the accumulation stage just as the stock and crypto markets were breaking out to new highs.

The combination of liquidity entering the stock market and MSTR’s new correlation with the rising price of Bitcoin sent the stock up nearly 1,400% from the pandemic low to the peak of the bubble.

Then, the stock entered its distribution stage as Bitcoin cooled off and investors took profits.

And of course, the story concludes, as expected, with the capitulation stage and MSTR falling 89.8% from its high!

Daily Chart of MicroStrategy Inc. (MSTR) – Source: TradingView

So, what’s the lesson?

Well, first, to always remember the Four States of the Stock Cycle.

But this situation also reminds me of what I said about Cathie Wood, CEO of ARK Invest, who gave up all her recent stock gains

I’m sure Michael Saylor is a smart guy. He went to MIT and built MicroStrategy from the ground up.

But the value of stocks and cryptocurrencies is driven by supply and demand.

If demand slows, price will fall. And every investor knows that.

That’s why we use proper risk management and don’t bet the farm on a single idea.

Will digital currencies one day replace physical ones? Absolutely.

But will Bitcoin be the one to do it? 

Call me a skeptic…

Join the Stealth Team

Before you go, I invite you to join me at Stealth Trades for a very special price of $0.99 for a full year

Institutional investors like pension funds, mutual funds, hedge funds and other large players make massive institutional buys that fly under the radar of most individual investors.

But if you know how to spot those buys in real time, you can potentially follow the big money to big gains.

This is what I focus on inside my premium Stealth Trades research service.

To learn more about the service and how you can get involved for just $0.99, click here now.

Embrace the surge,

Ross Givens
Editor, Stock Surge Daily

Brand New Strategy for Profiting from AI Stocks.

There’s a brand-new strategy in 2024 for going after big profits in AI stocks. It has nothing to do with Nvidia, Microsoft, Meta – or any of the big AI stocks the media can’t stop talking about.

It has to do with a fast-moving “backdoor” that has opened in the AI market... A backdoor that could send a very special class of AI stocks rocketing into the stratosphere.

Ross Givens
Ross Givens

I bought my first stock when I was 12 years old. It was Microsoft. I’ve been a registered financial advisor. I’ve worked as a stock broker. I ran a managed fund. I was a Vice President at JP Morgan with Series 7, Series 66 and Series 3 securities licenses. I’ve been featured on Fox Business, CNBC, Bloomberg, and a bunch of other networks. The only thing I enjoy more than making money, is helping YOU make money.

With Ross Givens

Looking for an edge? Ross has the inside scoop on top analysis that will help grow your portfolio.. Receive a new stock opportunity every day and get ready to see your investment SURGE!

Tech stocks are rallying – and Ross Givens’ #1 Tech Stock of the Decade has been making BIG moves you don’t want to miss.

Whats in the Article