JPMorgan (JPM) warned MSCI’s decision could force the strategy (MSTR) on top indices
Wall Street Investment Bank JPMorgan (JPM) says Strategy’s (MSTR) steep underperformance relative to Bitcoin In recent months has had more to do with index-inclusion risk avoidance than crypto-market dynamics.
The strategy’s once-inflated premium on its bitcoin holdings has largely evaporated, but the more recent slide reflects growing anxiety that issuer MSCI could remove the company from major equity indexes when it issues a Jan. 15 decision, the bank said in a report Wednesday.
The company founded by Michael Saylor currently sits atop major benchmarks including the NASDAQ 100, MSCI USA and MSCI World, the report said.
Of the roughly $59 billion market capitalization, roughly $9 billion sits in passive vehicles, exchange-traded funds (ETFs) and mutual funds that track these indexes, analysts led by Nikolaos Panigirtzoglou wrote.
This embedded presence allows exposure to bitcoin indirectly in both retail and institutional portfolios, a move analysts say could backfire sharply if MSCI’s strategy pans out and other companies that rely on digital assets as core Treasury holdings.
The withdrawal from MSCI alone could drive about $2.8 billion in passive outflows, with $8.8 billion at risk if other index providers follow suit, according to analysts.
While active managers are not obliged to mirror changes in the benchmark, bank analysts have argued that losing key status in the index would deal a reputational blow, raising doubts about the strategy’s ability to tap into the equity and debt markets. Lower index-linked activity can also thin liquidity, making the stock less attractive to large institutional investors.
The strategy’s combined market value across equity, debt and preferred relative to its bitcoin holdings has fallen to its lowest level since the pandemic. A negative ruling on January 15, the bank warned, would push that ratio even closer to one, effectively tethering the company’s valuation almost entirely to the Bitcoin stack.
The distributors are 3.5% higher in pre-market tradingaround $193.
Read more: The strategy backfired with big bitcoin purchases, adding $835m last week
