Analysts Warn Strategy Could Face Index Exclusion, $9 Billion Loss Risk

Strategy, formerly MicroStrategy, may face exclusion from the Morgan Stanley Capital International (MSCI) index due to its significant Bitcoin holdings. This could lead to financial losses and affect the broader cryptocurrency sector, with potential $9 billion in reduced demand for its shares.

Key Developments

MSCI proposed that companies with digital assets over 50% of their total should be removed from benchmarks, likening them to investment funds.
Strategy and other firms argue they are operational companies and see MSCI's proposal as biased against crypto.
If MSCI excludes Digital Asset Treasury (DAT) companies, it may influence other index providers to do the same.
Asset managers hold up to 30% of a large-cap company’s free float, risking outflows if excluded from major indexes.

Financial Impact

Strategy's CEO and co-founder predict $2.8 billion in stock liquidation if excluded by MSCI, affecting the $15 trillion passive investment market.
TD Cowen estimates Strategy’s $2.5 billion market value linked to MSCI; $5.5 billion depends on other indexes.
JPMorgan suggests potential $2.8 billion outflows from MSCI exclusion, possibly rising to $8.8 billion with additional exclusions from other indexes.

Wider Implications

38 companies, including French firm Capital B, are identified at risk of exclusion, with a combined market cap of $46.7 billion.
Access to passive fund flows is seen as crucial for future adoption by firms like Capital B.
Market valuations have largely accounted for these proposals, potentially raising capital costs for Bitcoin treasury companies.

Strategy

Strategy's stock (MSTR) trades on Nasdaq at $165, marking nearly a 4% gain recently.