Strategy Faces Index Removal Threat Amid Market Downturn

• Michael Saylor’s firm risks removal from the Nasdaq 100 and MSCI USA.

• Possible $2.8B passive fund outflow if MSCI  finalizes delisting.

Michael​‍​‌‍​‍‌​‍​‌‍​‍‌ Saylor’s Strategy faces the risk of being dropped from major equity benchmarks such as the Nasdaq 100 and MSCI USA indices. Such a move might result in a total of around $2.8 billion in investor outflows if MSCI goes ahead with the delisting, as per the latest evaluation. Leading index providers are examining the criteria for inclusion of the Strategy and will be making their decision by January 15. At present, the firm is benefiting from close to $9 billion in passive fund exposure linked to these benchmark ​‍​‌‍​‍‌​‍​‌‍​‍‌listings.

Institutional Concerns Mount Over Classification

MSCI​‍​‌‍​‍‌​‍​‌‍​‍‌ is discussing with investors the idea of excluding companies that derive more than 50% of their assets from digital currencies from major indices. A number of institutional investors perceive such companies as being more like a fund of assets than a company with an actual business.

The discussion has become vehemently as the company’s business model is mostly about Bitcoin accumulation. Index exclusion, according to JPMorgan analysts, would be a “bad signal” to other market participants and would lead to a “reduction in liquidity” for the ​‍​‌‍​‍‌​‍​‌‍​‍‌company.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ company’s shares have been highly unstable and have dropped sharply after peaking to record highs in November last year, by more than 60%. As a result, the excellent valuation that was attracting the momentum investors has been wiped out. Presently, the firm’s market capitalization is just a little higher than the net asset value of Bitcoin that it holds, indicating that the investors are less confident than ​‍​‌‍​‍‌​‍​‌‍​‍‌before. 

In​‍​‌‍​‍‌​‍​‌‍​‍‌ spite of increasing demands, Saylor is still going on with buying Bitcoin. His Strategy bought 8,178 Bitcoin for $835.6 million just recently, so the total stash went up to 649,870 Bitcoin as of November 16. The head of the company keeps saying that their company is a very strong one and thus it can take heavy swings in the crypto market without threatening its existence. Investors are now looking forward to a decision in January to find out if index providers will give the green light to this strategy or ​‍​‌‍​‍‌​‍​‌‍​‍‌not. 

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