FT Cryptofinance: Michael Saylor’s tax troubles

Hello and welcome to the FT Cryptofinance newsletter. This week we take a look at Michael Saylor, one of the biggest bitcoin supporters in the world.

Some people become inextricably tied to defining eras of market manias.

The names of Wall Street analysts Jack Grubman and Henry Blodget help tell the story of the dotcom era. Dick Fuld, Chuck Prince and Jimmy Cayne, executives of Lehman Brothers, Citigroup and Bear Stearns, are etched into the narrative of the 2008 financial crisis. For the cryptocurrency boom and bust of 2021-22, Michael Saylor is one of the best known names. Just as bitcoin has a year to forget, so does the 57-year-old software manager.

A quick refresher for the uninitiated: Saylor was the CEO of MicroStrategy, an enterprise software company, but became the leading bitcoin evangelist during the boom. He tried to wrap technology in gnomic phrases such as “Bitcoin is the most universally desirable property in space and time” while investing the company’s money in the original and most popular cryptocurrency. big. In June this year, filings showed that MicroStrategy held around $4 billion worth of bitcoin, up from $5.7 billion at the end of 2021.

Then came the crash. Bitcoin’s value has fallen more than 50% since the start of the year and has shown few signs of recovery. After watching his company’s financial resources dwindle on the wrong side of the bet, last month he stepped down as CEO of MicroStrategy to become executive chairman responsible for its “bitcoin acquisition strategy.” Hmm.

Things got even worse for Saylor this week. The Attorney General for the District of Columbia sued him for tax evasion, alleging he evaded paying more than $25 million in taxes in the U.S. capital by pretending to live in Florida, when he actually resided in Washington DC.

The suit is a fascinating read, if only to see how the AG office – with a whistleblower to help – scoured social media posts, photos of yachts, local newspapers and private jet flight logs to build his case.

Saylor said he disagrees with the lawsuit and lives in Florida.

Saylor’s high profile may be a wake-up call to others. The lawsuit cites an interview Saylor gave in January 2021 in which he said bitcoin was an ideal tool for evading taxes.

What’s next for one of crypto’s most colorful personalities? MicroStrategy says the lawsuit is a “personal tax matter” for Saylor, even though the regulator has named the company as a defendant, alleging it conspired to help him evade taxes he owes. The company added that “the District of Columbia’s claims against the company are false and we will aggressively defend against this overbreadth.”

Still, writing farewell tunes can be premature. As a recent portrait of Saylor by my colleague Richard Waters noted, he has an ironclad self-assurance.

Indeed, a man ready to declare in public that “Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of trust, growing smarter, faster, and stronger behind a wall of encrypted energy” is no shortage of trust.

He has also resurfaced after losing large amounts of wealth and has already had contact with authorities. In March 2000, he saw more than $6 billion wiped from his personal wealth in a single day when MicroStrategy adjusted its accounting and restated two years of earnings. Then he paid an $8.3 million fine to settle a subsequent Securities and Exchange Commission investigation into accounting, without admitting or denying wrongdoing.

One thing is unlikely to change, regardless of Saylor’s upcoming legal battle. My colleague Jemima Kelly asked him a few weeks ago what the consequences would be if he was found to be fundamentally wrong about bitcoin. “We would already be bankrupt if we hadn’t, and I don’t think we’re wrong,” he said.

On Thursday, hours after the AG filed his complaint, he was tweeting: “Bitcoin is good energy.”

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Highlights of the week

• Some failures are more fun than others, and OptiFi’s demise doesn’t disappoint. It was a decentralized exchange powered by Solana until Monday, when a developer working on an upgrade accidentally shut down the entire project beyond recovery. In their defense, the developers presented themselves as the best they could but it is not a tale that covers them with glory. Optimists, they asked their users: “How can we do better?” On the blockchain, it’s not just transactions that are immutable. Your mistakes are too.

• Traditional finance has safeguards for stupid mistakes. Crypto.com won an order from an Australian court for the return of his funds after he accidentally transferred A$10.5 million to an Australian woman, instead of a refund of A$100. The company then noticed nothing for seven months. She spent part of it to buy a house, but the court ordered her to sell the property and return the money.

• Ukrainian police are cracking down on crypto. A look for alleged call centers uncovered a criminal scheme that allegedly embezzled funds from citizens across Ukraine and the EU under the guise of crypto, securities, gold and oil trading.

• Sam Bankman-Fried, chief executive of crypto exchange FTX, has big ambitions, but buying rival exchange Huobi isn’t one of them. This week, he tweeted, “Just to be explicit because apparently a lot of people are saying this: No, we don’t plan to acquire Huobi.”

Soundbite of the week: Congressman takes on crypto scammers

Congressman Raja Krishnamoorthi, who also chairs the subcommittee on economic and consumer policy, sent letters to Binance, Coinbase, FTX, Kraken, and KuCoin requesting information on how they fight crypto fraud. The Treasury Department and the Securities and Exchange Commission were also on the list of recipients.

“The lack of a central authority to report suspicious transactions in many situations, the irreversibility of transactions, and the limited understanding that many consumers and investors have of the underlying technology make cryptocurrency a method of transaction favorite of scammers.”

Data mining

A few weeks ago in this newsletter, we looked at Merge, a long-awaited update to the Ethereum blockchain that aims to drastically reduce its carbon footprint.

As of this writing, it’s still likely to take place September 15-19, but the developers have not set a firm deadline.

Nobody really knows what this means for the price of Ether, the home currency of Ethereum, because such a big change for such an important blockchain is unprecedented in the short history of crypto. Over the past month, Ether has made a round trip from $1,500 to $2,000 and back again.

In the past three months, there has also been a 65% drop in active Ethereum wallet addresses, according to data from the FT Wilshire Digital Asset Dashboard. Typically, an increase in single portfolio activity signals overall positive market sentiment.

The futures market, which is widely used to bet on the price of cryptocurrencies, suggests that many traders are preparing for the unexpected. The number of ether futures, denominated in ether, is at an all-time high, according to Kaiko’s research, and most bets are positioned for a drop.

It could just as easily be insurance as speculation. Collectively, the signals suggest that investors are hedging the possibility of both quick gains and sudden declines in the weeks ahead.

It’s all for this week. See you at the same time next Friday. Have a good week-end!