Strategy (MSTR) Faces Pressure as MSCI Reviews Crypto-Fueled Model

TLDR

• MSCI’s decision on Strategy could lead to $8.8B outflows.
• Bitcoin’s volatility raises risks for Strategy’s equity model.
• MSCI exclusion threatens Strategy’s ability to raise capital.
• Strategy’s stock mirrors Bitcoin swings, intensifying risks.
• MSCI review could set a precedent for other index providers.

Strategy (MSTR) is under intense scrutiny as MSCI reviews whether it should remain included in its equity indices. MSCI’s decision, set for January 15, could significantly impact Strategy’s market position. The company, which has used Bitcoin as a central part of its business model, now faces a major challenge as Bitcoin’s volatility amplifies risks for the firm.

MSCI’s review comes amid concerns that companies like Strategy, which rely heavily on cryptocurrencies, may not align with traditional equity benchmarks. The outcome could trigger a ripple effect across other index providers, potentially resulting in significant market shifts for Strategy. If MSCI decides to exclude Strategy, the company could experience up to $8.8 billion in outflows, according to a JPMorgan estimate.

Bitcoin Volatility Amplifies Strategy’s Market Risk

Strategy positions itself as a digital-asset treasury, offering a way for investors to gain Bitcoin exposure through equity markets. However, the recent drop in Bitcoin prices has exposed the risks of this business model. Bitcoin’s value recently fell from $119,000 to a low of $83,800, amplifying the effects on Strategy’s stock.

The company’s stock tends to follow Bitcoin’s price swings, making it more volatile than typical equities. Michael Saylor, Strategy’s chairman, acknowledged the risk, stating that the equity will fall more than Bitcoin if the cryptocurrency drops significantly. As Bitcoin falls 30-40%, the company’s equity will also decline, he noted. This market volatility has added to the pressure Strategy faces as MSCI reevaluates its inclusion.

MSCI’s Potential Move Could Affect Strategy’s Funding Ability

MSCI’s ongoing review raises concerns about Strategy’s future funding and ability to raise capital. The company has funded its Bitcoin acquisition strategy by issuing stock and taking on debt. However, JPMorgan highlighted that a potential MSCI exclusion could affect the firm’s ability to attract equity and debt financing.

Strategy’s leverage ratio stands at 1.11x, and Saylor insists the company can survive a 95% drop in Bitcoin’s value. If MSCI and other index providers follow suit, the exclusion could further hinder the company’s ability to generate capital. Despite these concerns, Saylor downplayed the impact of any potential exclusion, stating that it would make no difference to the company’s operations.

The Bigger Picture: The Future of Bitcoin-Heavy Firms

While MSCI’s decision is crucial, it may set a precedent for other index providers. Historically, S&P Dow Jones Indices, FTSE Russell, and Nasdaq have mirrored MSCI’s eligibility shifts. Analysts warn that if MSCI removes Strategy, other providers may follow, further destabilizing the market for crypto-heavy companies.

The company has already slashed its full-year earnings outlook, now expecting a loss of up to $5.5 billion. This revision comes after Bitcoin experienced its largest monthly drop since mid-2021. As a result, the digital-asset treasury model that once powered Strategy’s rise may now be facing its largest structural challenge yet.

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