JPMorgan Signals $2.8 Billion Exodus Risk if Strategy Inc Loses Index Spot

• JPMorgan expects that if Strategy Inc. is excluded from major indices, it is likely to suffer around $2.8 billion in fund outflows.
• Yields of Strategy’s 10.5% notes increased to 11.5% with Bitcoin’s price decline of around 30%
• MSCI is assessing firms with over 50% of assets in digital tokens, which may impact around $9 billion of passive investments.

Michael Saylor’s Strategy Inc. faces potential exclusion from major benchmark indices as the cryptocurrency market declines. Bloomberg, sourced from JPMorgan strategists, reported that MSCI may delist Strategy Inc. from its MSCI USA and Nasdaq 100 indexes. A potential delisting may cause considerable outflows if passive funds tracking these indexes are affected.

Wu Blockchain highlighted Bloomberg’s report, noting Strategy Inc.’s possible removal from the MSCI USA and Nasdaq 100. The review focuses on whether digital-asset-heavy firms function more like investment funds, as passive products with around $9 billion, which track a Strategy, and rely heavily on investments in digital assets.

MSCI plans to complete its consultation by January 15th. Market participants argue that those involved in digital assets in treasury functions affect index constituents. But, according to JPMorgan strategists, exclusion might affect market perception. The decline in crypto markets, down by over $1 trillion from October’s market value, is affecting sentiment and fund allocations broadly.

JPMorgan Signals Institutional Interest Could Decline

JPMorgan’s Nikolaos Panigirtzoglou reportedly viewed that Strategy could also lose its index holdings. It is estimated that if MSCI withdraws its index listing, $2.8 billion may instantly leave, and further outflows may occur if other index firms withdraw listing support as well.

MSCI declared last October that cryptocurrency treasury firms are ‘investment funds’ and not qualified to be included in any stock index. The new standard applies to those firms whose cryptocurrency holdings exceed 50% of their overall assets, symbolizing a new era in which firms focusing on cryptocurrencies are defined differently under traditional global equity indexing.

Strategy’s shares have dropped over 60% since their record peak last November. The fall erased a long-standing premium favored by momentum traders. However, the share has still increased by over 1,300% ever since CEO Saylor initiated its purchase of Bitcoin in 2020. The existing market conditions, however, dispute such trends.

Also Read | Bitcoin (BTC) Whale Owen Gunden Exits $1.3 billion BTC Holding as Institutions Raise ETF Stakes

Bitcoin Drop Weakens Strategy’s mNAV Ratio

The overall sell-off has affected its funding products. The yield of its 10.5% notes, issued in March, increased to 11.5%. The offering of its euro-denominated preferred stocks also traded below its discounted offering price. The price drop of 30% in Bitcoin has caused its ratio of MNAV to be above 1.1. 

Strategy’s long-standing presence in major benchmarks pushed Bitcoin exposure into mainstream portfolios. Passive ETF and mutual fund flows contributed to years of value and visibility. However, MSCI’s move is an indicator of changing sentiment.

Also Read | BlackRock Files Staked Ethereum ETF, Hinting at Explosive Yield Potential