MSCI Puts Strategy in the Hot Seat in Global Indexes
MSCI wants to take a stricter look at companies that keep most of their assets in Bitcoin. For Strategy, that could mean exclusion from indexes and selling by ETFs.
Key Takeaways
- MSCI could remove Strategy from major stock indexes under new rules for companies that mainly function as investment vehicles.
- If it is removed, index funds and ETFs may have to sell MSTR shares, which could add extra selling pressure.
- MSCI will announce the affected companies on November 11; the new rules take effect after November 30.
Strategy, the former MicroStrategy of Michael Saylor, could disappear from major global stock indexes after MSCI approved new rules for companies that act more like investment vehicles than operating businesses. That could force index funds and ETFs to sell their shares once the index makeup is adjusted.
New MSCI Rules
MSCI wants to be able to remove companies from its indexes if their value mainly comes from holding assets like Bitcoin, instead of from normal business operations. The index provider uses benchmarks like MSCI World and MSCI Emerging Markets, which many fund managers and index-tracking ETFs follow.
According to MSCI, the new test should better show whether a company is truly operational. The index provider looks at operating assets, cash flow from business operations, and how dependent a company is on outside financing. Strategy still has software operations, but the Bitcoin on its balance sheet now carries much more weight than that business line.
The company disagrees. Strategy previously called the proposal unfair and defended its structure as a legitimate publicly traded company.
Impact on Investors
If Strategy is removed from an index, ETFs that track that index would usually have to sell their MSTR shares during the rebalancing. That could add extra selling pressure, separate from what Bitcoin itself does or what investors think of Strategy.
Strategy estimates that MSCI-linked funds hold about 13 million shares, worth roughly 3.1% of the outstanding share count. The company does say this is less than the average daily trading volume, so the impact does not have to be large automatically.
MSTR rose 5.62% on Thursday to $151.29 (€135). That gain came before MSCI's announcement, which only followed after the close of the U.S. market.
More Pressure on Bitcoin Treasuries
MSCI's move does not only affect Strategy. In the earlier simulation, Japanese Bitcoin buyer Metaplanet and British uranium company Yellow Cake were also named as possible removals. Ethereum treasury company SharpLink could instead end up on a watchlist.
For European crypto followers, this matters because it shows how wide the gap has become between regular public companies and companies that mainly put Bitcoin on their balance sheets. If major index providers judge that group more strictly, it could affect how institutional investors include those stocks in portfolios.
MSCI will publish the list of affected companies on November 11. The rules take effect after November 30, while existing index members are temporarily protected by a test with two semiannual reports before removal follows.
