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Investing.com -- Michael Saylor’s Strategy Inc. could be dropped from major benchmark indices as the cryptocurrency market experiences a significant downturn, potentially triggering billions in outflows from passive funds, according to a report from Bloomberg News on Thursday, citing analysts at JPMorgan Chase.
JPMorgan Chase analysts warned in a note this week that Strategy might lose its place in indices like MSCI USA and Nasdaq 100. If MSCI proceeds with the exclusion, approximately $2.8 billion could exit the stock, with billions more at risk if other index providers follow suit. Passive funds tied to the company already represent nearly $9 billion in market exposure, with a decision expected by January 15.
"While active managers are not obligated to follow index changes, exclusion from major indices would certainly be viewed negatively by market participants," JPMorgan analysts led by Nikolaos Panigirtzoglou wrote, highlighting risks to liquidity, funding costs and investor appeal.
MSCI stated on October 10 that some market participants noted digital asset treasury companies may resemble investment funds, which aren’t eligible for index inclusion. The index provider is proposing to exclude companies whose digital asset holdings represent 50% or more of their total assets from the MSCI Global Investable Market Indexes.
Strategy’s shares have fallen over 60% since reaching a record last November, eliminating the premium that made it popular among momentum and crypto investors. Despite this decline, the stock remains up more than 1,300% since Saylor announced his first Bitcoin purchases in August 2020.
The selloff has affected Strategy’s newer funding vehicles as well. Yields on its 10.5% securities issued in March have risen to 11.5%, while a euro-denominated preferred stock offering launched this month quickly fell below its already-discounted offer price.
Bitcoin has dropped over 30% from its October high, with crypto markets losing more than $1 trillion in value. Strategy’s mNAV—the ratio of enterprise value to Bitcoin holdings—has fallen to just over 1.1.
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