Strategy Exclusion from MSCI Index: A Potential $9 Billion Impact
In recent months, Strategy (formerly known as MicroStrategy), a major player in the Bitcoin (BTC) treasury space, faces a critical situation that could result in its exclusion from the MSCI Index. This potential exclusion is not just a significant financial risk for the company itself but could also reverberate across the entire cryptocurrency industry. Experts predict that this move might result in a staggering $9 billion loss in demand for the company’s shares.
Understanding the Industry-Wide Consequences of Strategy Exclusion
In October, MSCI proposed the removal of companies with digital assets comprising over 50% of their total assets from its global benchmarks. The rationale was that these firms resemble investment funds, which are traditionally excluded from such indexes. However, companies like Strategy argue that this view is unfairly biased against the cryptocurrency sector, as many are operational firms offering innovative solutions.
Currently, MSCI is undergoing a public consultation. If they move forward with excluding Digital Asset Treasury (DAT) companies, it could set a precedent for other index providers to follow.
Kaasha Saini, head of index strategy at Jefferies, suggests that the conversation extends beyond MSCI, touching on the broader eligibility of DATs in equity indexes. Asset managers could control up to 30% of a large-cap entity’s free float, leading to potentially significant outflows if such companies are removed from major indexes. This poses a precarious situation for the DAT sector, which often relies on stock sales to finance token acquisitions.
Potential for Major Outflows from Strategy
In response to the potential MSCI exclusion, Strategy’s CEO Phong Le and co-founder Michael Saylor addressed the matter in a public letter. They estimated that this move could lead to $2.8 billion in stock liquidations, potentially chilling the entire industry. Excluding DATs might bar them from the $15 trillion passive investment market, severely impacting their competitive edge.
Analysts at TD Cowen have estimated that around $2.5 billion of Strategy’s market value is tied to MSCI, with an additional $5.5 billion at risk if other indexes follow suit. JPMorgan’s analysis indicates that if MSCI excludes Strategy, the company could face $2.8 billion in outflows, escalating to $8.8 billion if dropped from additional indexes like the Nasdaq 100.
Beyond Strategy, MSCI’s preliminary list includes 38 companies potentially at risk, with a combined issuer market cap of $46.7 billion as of September 30. This includes Capital B from France, another firm investing in Bitcoin. Alexandre Laizet, director of Bitcoin strategy at Capital B, notes that while current passive fund holdings in their shares are limited, access to passive flows is crucial for future expansion.
Matt Cole, CEO of US-based Bitcoin buyer Strive, which is not facing exclusion, suggests that the proposals have largely been factored into market valuations. He adds that on a long-term basis, this could raise the cost of capital for all Bitcoin treasury companies.
As of this writing, Strategy’s stock, trading under the ticker symbol MSTR on Nasdaq, was valued at $165, marking a 4% increase ahead of the week’s trading close.
