Strategy Faces Threat Of Exclusion From Key Indices

According to Bloomberg, the cryptocurrency market decline has put Strategy under pressure; it may be dropped from benchmark indices, including the MSCI USA and Nasdaq 100. Analysts warned that removal from the MSCI index alone could trigger the exit of up to $2.8 B in investments. Losing other indices would add billions more to this sum.

Threat To Institutional Credibility

Exclusion from the indices would strike a blow to Strategy’s institutional credibility. The company grew by incorporating crypto exposure into its stock structure.

At its peak, Strategy's market capitalization significantly exceeded the value of its reserves. Now, that premium has largely vanished, and the company's valuation barely hovers above its cryptocurrency reserves. This signals a rapid wane in investor confidence.

Following a record surge last November, Strategy's shares have slumped by over 60%, collapsing the premium. Nevertheless, Strategy still holds nearly $650 K in bitcoins, and since CEO Michael Saylor announced the first BTC purchase in August 2020, its shares remain up by more than 1300%.

According to an MSCI statement, some market participants believe that companies holding digital assets in their treasury are more akin to investment funds, which are ineligible for index inclusion. MSCI proposed excluding companies from the index whose digital asset holdings constitute 50% or more of their total assets.

Analysts at JPMorgan noted that market participants would view exclusion from major indices negatively. This could create risks for liquidity and investor appeal.

The sell-off has also affected the firm’s newer funding instruments. Prices for perpetual preferred shares have dropped sharply. Yields on the securities issued in March with a 10.5% coupon climbed to 11.5%.

Bloomberg reports that Strategy helped define the digital asset treasury model, but its approach is now showing its limits as bitcoin has fallen by more than 30% from its October high.

Read also:

• Strategy Ready To Withstand A 90% Bitcoin Drop — Michael Saylor

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