Simply put
- If other indexes follow suit in excluding the strategy, additional outflows could escalate by $8.8 billion.
- Strategy’s stock has dropped over 40% in the last month as Bitcoin values have decreased.
- The premium for the company’s Bitcoin holdings has also significantly declined.
If MSCI decides to remove MicroStrategy (MSTR) from its stock index, JPMorgan estimates that this could lead to $2.8 billion in total outflows, and potentially $11.6 billion if other exchanges join in.
The recent decline in MSTR’s stock price, along with declines seen this year, seems to stem more from fears of being removed from major indexes like the MSCI List and Nasdaq 100, rather than directly from Bitcoin’s price drop, according to analysts.
“Being included in this index allows Bitcoin to seep into the portfolios of everyday and institutional investors,” the analysts noted. “However, this indirect access could be reversed if MSCI proceeds with removing MicroStrategy and similar digital asset companies from its indexes.”
Currently, MSCI is evaluating the exclusion of firms heavily invested in Bitcoin and other cryptocurrencies, particularly those where these assets represent at least half of their holdings.
Last month, MSCI announced that the “consultations” regarding this matter would be extended until the year’s end, with a decision anticipated by mid-January.
Strategy Inc., based in Tysons Corner, Virginia, is confronting mounting challenges as Bitcoin prices tumble.
The firm’s market capitalization stands at $51 billion, reflecting a premium of only 0.90 over its nearly $56 billion Bitcoin inventory, data shows. The premium, referred to as mNAV, has fallen from 2.7 last year.
Last week, the company’s executive chairman, Michael Saylor, addressed rumors surrounding possible liquidation of some of their Bitcoin holdings.
The stock fell 5.1% on Thursday to $177.13, aligning with the broader trend of its 40% decline over the past month tied to Bitcoin’s downturn.
JPMorgan analysts point out that index-focused funds hold a significant share of MicroStrategy’s stock.
“While active managers may not have to follow index changes, removal from prominent indexes is bound to be seen negatively, which raises valid concerns about the company’s equity and debt capabilities moving forward,” they observed. “A drop in index-related trading could also cut down on trading volume and liquidity, further diminishing its appeal to significant investors.”
Bitcoin itself has slid by 3.4% since Wednesday, hovering around $87,100, and has experienced a drop of more than 22% this month. The cryptocurrency has dipped significantly since reaching a peak in early October.
Experts attribute this decline to macroeconomic worries, particularly related to an upcoming jobs report and reduced expectations for interest rate cuts, which could exacerbate liquidity requirements in digital asset markets.
In prediction markets, users see only a 20% chance that Bitcoin will hit $115,000 next, as opposed to the likelihood of dropping to $85,000. This marks a notable shift in sentiment from just a week ago.
Myriad is a division of Dastan, Decrypt’s parent company.
