Since the end of 2020, Strategy has been accumulating Bitcoin 
$78,680 and has added a significant portion of the supply to its treasury. Constantly generating cash through borrowing to expand its reserves, MSTR now faces a major issue. There is consideration of categorizing Strategy and other reserve companies as funds, which might lead to significant sell-offs.
MSCI’s Cryptocurrency Assessment
MSCI has proposed a recommendation for publicly traded companies that hold crypto tokens in their reserves and have a majority of their assets in cryptocurrencies. These shares, treated like a proxy cryptocurrency ETF fund, trade on exchanges like a regular company. Because they are not categorized with funds, they have a broader reach into portfolios and, therefore, access to substantial liquidity.
MSCI, however, suggests such entities exhibit characteristics similar to investment funds not suitable for indices. The final decision will be revealed on January 15. MSCI (Morgan Stanley Capital International) is a publicly traded company established to measure the performance of capital markets across the globe, with numerous indices worldwide. A stock being part of MSCI indices implies increased demand and volume.
Implications of Unfavorable Decisions
If a decision is made against these entities on January 15, cryptocurrencies may experience a sharp decline at least in the short to medium term. Investment funds and trusts are not appropriate for flagship stock indices like the MSCI USA Index and the MSCI World Index. Should MSCI and others regard MicroStrategy as an investment fund or trust, resulting in an “index exclusion,” it could have an effect similar to Binance delisting Bitcoin, potentially leading to delisting of MSTR shares.
Many funds track the MSCI index and invest in them. If excluded from the list, a large portion of institutional investors would lose access to MSTR, making it less secure and less accessible. Not only MSTR but all publicly traded reserve companies like BitMine, which have to borrow to survive and buy more cryptocurrency, would face a similar situation.
JPMorgan analysts estimate that Strategy could face a passive outflow of 2.8 billion dollars if removed from the MSCI indices. Considering that approximately 9 billion dollars of MSTR’s market value comes from passive, index-following funds, exits would not be limited to 2.8 billion dollars. Strategy is a stock traded on the Nasdaq-100 and various MSCI indices. Over 100 BTC reserve companies, including MARA and XXI, hold part of the 21 million BTC supply, with MicroStrategy holding around 650,000 BTC alone.
Saylor, therefore, stated:
“Strategy is not a fund, trust, or holding company. We are a publicly traded enterprise with a 500 million dollar software business and a unique treasury strategy leveraging Bitcoin as productive capital.
This year alone, we completed a public offering of five digital credit securities with a nominal value over 7.7 billion dollars: $STRK, $STRF, $STRD, $STRC, and $STRE. We also launched Stretch ($STRC), a revolutionary Bitcoin-backed treasury note tool offering variable USD returns to institutional and individual investors monthly.
Funds and trusts passively hold assets. Holding companies sit on investments. We create, structure, issue, and operate. Our team is establishing a new type of enterprise, a Bitcoin-backed structured finance company, capable of innovating in capital markets and software.
Passive vehicles or holding companies cannot do what we do.
Index classification does not define us. Our strategy is long-term, our belief in Bitcoin is unwavering, and our mission is steadfast: to build the first digital currency institution on a firm foundation of sound money and financial innovation.”
Strategy shared the above chart to clarify discussions about bankruptcy with falling prices.
“At the current BTC levels, assuming the price remains constant, we have a 71-year dividend coverage. And any BTC appreciation above 1.41% annually completely offsets our annual dividend obligations.”
