Key Takeaways
Why is MSTR suddenly facing a real foreclosure risk?
MSCI’s updated rules target companies whose balance sheets are dominated by Bitcoin, putting MSTR straight into the danger zone.
How big could the impact be if MSTR is removed?
JPMorgan estimates that there will be $2.8 billion in forced passive outflows from MSCI alone. And up to $8.8 billion+ if other index providers follow suit.
The government bond market is waking up to a reality check. Volatility has spiked since the start of the fourth quarter and investors are finding their algorithms are not holding up, leaving many stakeholders deeply underwater.
Strategy [MSTR] has not escaped the pain either. After consecutive declining quarters, the stock has fallen nearly 70% to $177, back to Q4 2024 levels, while Bitcoin [BTC] only lost about 21% in the same stretch.
JP Morgan analysts are now identifying a potential risk – MSTR could be excluded from Morgan Stanley Capital International’s (MSCI) upcoming review in January. The question is: is this a classic sell-the-news event?
MSTR’s valuation cycle is faltering at the worst possible time
The underlying engine of MSTR is starting to show cracks.
From a technical perspective, MSTR has lost 40% over the past month and is down 68% from its ATH. The company currently owns 649,870 Bitcoin at an average cost of $74,433 per coin – a huge exposure.
Technically, this means that if BTC falls another 8% from the $80k level, the company’s position would be completely in the red. That pressure has hit the stock and premium hard, making $160 a solid floor for MSTR.
Source: TradingView (MSTR/USDT)
In particular, this is exactly why JP Morgan’s thesis matters.
MicroStrategy’s old playbook was simple: withdraw money from the stock, buy BTC, the stock rises, and repeat. However, that loop has now been broken. When the stock trades near the BTC value, there is no longer a premium to finance the purchase.
For example, if MSTR’s BTC/share is worth $150 and the stock is trading at $300, the company can sell shares and buy BTC. However, if the stock is trading closer to $150, there is no longer a premium. So the cycle stops.
With that in mind, MSTR’s potential exclusion from MSCI no longer feels hypothetical. And what exactly do analysts expect from this risky event, now that the decision is less than two months away?
A huge outflow threatens now that Microstrategy is confronted with index risk
MSCIs new criteria for DATs puts MSTR directly in the spotlight.
MSCI has indicated that companies whose Bitcoin holdings dominate their balance sheets could be reclassified. In a more serious scenario, they could even be removed from the major indices altogether.
And the market is already pricing that in. As mentioned above, MSTR’s valuation premium has shrunk rapidly. That only adds to investor concerns, putting the stock at risk of sliding towards the $160 level.
Source: X (Mattheus Sigel)
The bigger problem? Bloomberg reports this that JPMorgan estimates that $2.8 billion in passive flows would be forced to sell if MSCI scraps MSTR. And if other indices mirror this move, total outflows could rise to $8.8 billion+.
In short, MSTR is at a real turning point.
The company is still adding BTC using debt. However, in a risk-free market, this strategy is starting to look increasingly vulnerable. That’s why a complete exclusion from MSCI in January is no longer just headline news. Instead, there’s a legitimate risk on the table.