The bitcoin market faces a new challenge that goes beyond variations in its price. Strategy, Michael Saylor’s company known for its large reserves of cryptocurrencies, risks losing its place in certain major stock indices. On Thursday, the MSCI approved new rules targeting companies whose activity more closely resembles an investment vehicle than a traditional business. The move could change demand for Strategy shares and complicate future purchases.
In brief
- MSCI has approved new rules that could exclude Strategy from some major stock indexes.
- Index funds could sell about 13 million MSTR shares, according to Strategy estimates.
- MSTR stock rose 5.62% Thursday to $151.29 ahead of MSCI’s announcement.
- The final decision is expected on November 11, with application of the new rules after November 30.
MSCI wants to distinguish operating companies from investment companies
MSCI constructs benchmark indices like MSCI World and MSCI Emerging Markets. Fund managers rely on these indices to choose their investments, while index ETFs automatically track their movements. Therefore, a change in their composition may result in purchases or sales of shares, regardless of the individual choices of investors.
The new rules are aimed at companies whose value is mainly based on the holding of assets rather than on traditional operational activity. In a previous simulationMSCI had identified Strategy, formerly MicroStrategy, and Metaplanet, a Japanese company that buys bitcoin, among the potentially affected companies. Yellow Cake was also included in this analysis, while SharpLink may join a watchlist.
To evaluate these companies, MSCI examines, among other things, their operating assets, cash flow and dependence on external financing. Strategy continues to sell software, but its cryptocurrency reserves now represent the majority of its balance sheet. L’company contests this approach and believes that the MSCI proposal is based on a distinction that is unsuitable for its model. She expressed her disagreement in her official response to the organization.
Bitcoin: why Strategy risks pressure on its shares
A possible exclusion of the affected indices could force the ETFs that track them to sell their MSTR shares during their rebalancing. These sales would create additional pressure on the stock, even if investors maintain their confidence in the company. The mechanism would then depend on the rules of the indices, and not only on the evolution of the cryptocurrency market.
According to Strategy estimates, funds tied to MSCI indexes hold about 13 million shares. This volume represents nearly 3.1% of the company’s basic outstanding shares. However, Strategy emphasizes that this quantity remains lower than the volume usually traded in a day. Other investors could therefore absorb the sales without necessarily causing a significant drop in the price.
L’MSTR stock rose 5.62% Thursday to close at $151.29. This increase came before MSCI’s announcement, published after the American markets closed. The reaction of the title to this decision therefore remains an element to follow. Longer term, reduced demand for Strategy shares could limit its ability to raise funds to bolster its bitcoin reserves.
An exclusion that would not force Strategy to sell its reserves
An exit from the MSCI indices would not mean that Strategy must abandon its business model. The company would maintain its Nasdaq listing and could continue to hold its digital assets. The measure would mainly concern its eligibility for indices and the possible consequences on the investments that follow them. It would therefore not automatically trigger a sale of its reserves.
The calendar is now a central point for investors. MSCI plans to publish the list of affected companies on November 11, ahead of the rules taking effect after November 30. Companies already present in the indices would, however, benefit from protection based on a two-year filing test before their possible exclusion.
In the coming weeks, bitcoin will remain an important element to monitor to understand the evolution of the company’s strategy. However, MSCI’s final decision could mostly influence institutional demand for MSTR stock. Future announcements will clarify the extent of the risk and its possible consequences on the financing of Strategy’s future purchases.
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