Michael Saylor’s Strategy Inc. faces removal from major indices. This risk is due to digital asset holdings exceeding half of its total assets.
Michael Saylor’s company, Strategy Inc., currently faces a major threat to its stock market presence. According to Bloomberg, potential dangers of being removed from the MSCI USA and Nasdaq 100 indices loom large. This critical review focuses on the company’s huge exposure with Bitcoin. Consequently, index providers now see the firm more as an investment fund. This designation usually disqualifies a company from common equity benchmarks.
MSCI Considers Redefining Digital Asset Treasury Firms
MSCI, a global index provider, is in a consultation process on new criteria. In this light, they propose the exclusion of those firms whose digital asset holdings can exceed 50% of their total assets. Therefore, Strategy Inc. is one of the most vulnerable companies to this new policy. The consultation period is scheduled to end before the end of the year.
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Currently, Strategy has 649,870 Bitcoin in its holdings. The stock of the company has historically benefited from the inclusion in the index. This enabled passively invested vehicles to take indirect exposure to Bitcoin. However, this indirect encroachment may now completely turn around. MSCI anticipates that it will have a final decision by January 15.
Passive funds that are linked to Strategy Inc. already account for nearly $9 billion in market exposure. This time of exposure makes the firm dependent on the current benchmark status. Losing this position would drastically change its position with major institutional investors. In fact, the potential for significant outflows is now very real.
Analysts Warn of Multi-Billion Dollar Outflows and Valuation Risk
Analysts at JPMorgan Chase & Co. handed a serious warning this week. They believe that Strategy Inc. could lose its position in the MSCI USA and the Nasdaq 100. In particular, MSCI exclusion alone could potentially cause about $2.8 billion in passive fund outflows.
Furthermore, the analysts estimate that total outflows could increase dramatically. If all the other major index providers are to follow suit, this number could be as high as $11.6 billion. Such a large withdrawal of capital would have a disastrous impact on the liquidity of the stock. This makes the company less attractive to big-box portfolios.
The stock has traded at a significant valuation premium historically. This premium was a reflection of the general enthusiasm of the market for its Bitcoin holdings. Nevertheless, analysts speculate that the removal of the index may result in this premium disappearing. The value of the company might then be very close to its net asset value, primarily the stockpile of Bitcoins.
This situation reveals the structural limitations of the “digital asset reserve” model. JPMorgan analysts wrote that index exclusion will definitely be viewed as a negative signal. This would therefore cause deep concerns on the future ability of the company to secure equity and debt.
Moreover, this high-stakes review by MSCI will have an enormous effect on the firm’s future. The potential index removal is threatening up to $11.6 billion in passive fund outflows. Therefore, this decision in January will be a test of the unique model of digital asset treasury to its fullest extent. The ultimate result defines how the market perceives corporate tactics that focus on Bitcoin.