MSCI has approved new rules that could jeopardize Strategy’s index membership as its shares continue to trade almost 69% below their peak. On October 15, the global index provider announced a new methodology that would exclude companies classified as non-operating businesses from its Global Investable Market Indexes, with the changes taking effect after the market close on November 30.
This decision poses a significant threat to Michael Saylor’s Bitcoin treasury company, Strategy, as it could lose access to billions of dollars in index-linked investment. The stock has experienced one of its most substantial declines since adopting Bitcoin as its primary treasury asset in 2020.
Earlier, MSCI had identified Strategy, Japan’s Metaplanet, and uranium investment company Yellow Cake for potential deletion based on an August simulation using financial data from May. Ethereum treasury company SharpLink was also placed on a proposed watchlist.
The new framework implemented by MSCI assesses whether a company has substantial operating assets. Companies that do not pass this initial screen will undergo five financial-ratio tests, and being flagged on at least four of them makes them ineligible for index inclusion. Existing constituents must fail the eligibility screen in both of their two most recent annual filing periods before facing removal.
The decision from MSCI has revived a threat that Strategy’s executives had been contesting for months. The company argued in September that excluding Bitcoin treasury businesses would undermine MSCI’s neutrality and create an arbitrary distinction between operating companies and investment vehicles.
Market commentator Mark Harvey shared a chart based on Yahoo Finance daily closing prices, showing that Strategy’s stock is currently 68.7% below its peak. Despite this, Harvey described the depressed valuation as a generational buying opportunity, indicating optimism that Strategy’s long-term Bitcoin exposure could outweigh its current challenges.
JPMorgan analysts estimated that MSCI’s removal could lead to approximately $2.8 billion in passive selling of MSTR shares. However, market observers have conflicting opinions on how this selling pressure would impact Strategy, with some emphasizing the significant trading volume of the stock.
Bitcoin analyst Adrian Morris argued that the liquidity available in MSTR shares could mitigate the effects of MSCI-related selling. He shared figures showing that Strategy had generated substantial trading volume throughout the year, indicating that the selling scenario estimated by JPMorgan could potentially be absorbed through normal trading activity.
Despite the potential selling pressure, Strategy’s ability to finance future Bitcoin purchases could face a more significant risk according to Coin Bureau CEO Nic Puckrin. He warned that sustained selling could reduce the premium at which MSTR trades relative to its Bitcoin holdings, potentially impacting the company’s accumulation strategy.
In its latest disclosure, Strategy reported acquiring 250 BTC for $21.5 million, primarily funded through selling common shares. The company also repurchased STRC preferred stock for $192.4 million during the same period, indicating a shift in its capital allocation strategy.
The final constituent changes by MSCI will be published on November 11, with potential removal of Strategy leading to index-tracking funds rebalancing for implementation by the November 30 close.
