Pro Analytics for Blockchain
Pro Analytics for Blockchain
Michael Saylor, the executive chairman of Strategy (MSTR), finds himself in a high-stakes poker game with MSCI, the global index provider. The question on the table: should Strategy, a company whose value is now inextricably linked to Bitcoin, remain in major equity indices? The answer could trigger billions in outflows and further batter MSTR's already struggling stock. But is this a temporary setback, or a fundamental flaw in Saylor's grand vision?
The core issue, as MSCI sees it, is whether Strategy is truly an operating company or simply a Bitcoin holding vehicle. MSCI has proposed excluding companies with crypto reserves accounting for more than half of their total assets. Strategy, with its massive BTC holdings, certainly fits that bill. As of this writing, they hold around 650,000 BTC, valued at over $60 billion. However, the company's market cap has slumped below $50 billion, a discrepancy that raises serious questions.
A JPMorgan analysis estimates potential outflows as high as $8.8 billion if MSCI, and eventually other providers, remove Strategy from their indices. Saylor himself has downplayed this figure, but it's hard to ignore the potential impact. Exclusion from major indices would likely lead to reduced investor interest, higher funding costs, and a significant loss of liquidity. It's a classic case of passive funds being forced to sell, creating a downward spiral.
Strategy's stock has already taken a beating, falling more than 37% this year and over 50% since crypto prices peaked in October. The correlation between MSTR and BTC is undeniable—Saylor himself acknowledges that Strategy's stock is "highly volatile" because it's effectively leveraged to Bitcoin. "If it drops 30% or 40%, the stock will fall even more," he told Reuters.
But here's the part I find genuinely puzzling: Saylor insists that Strategy is not a fund, trust, or holding company. He argues that it's a "publicly traded operating company with a $500 million software business and a unique treasury strategy that uses Bitcoin as productive capital." This is a crucial point. Is Saylor trying to have his cake and eat it too? Can Strategy truly be an innovative operating company while simultaneously being so heavily reliant on a volatile asset like Bitcoin?
The numbers suggest otherwise. While the software business exists (reported revenue around half a billion), it's overshadowed by the company's Bitcoin strategy. The market clearly values Strategy more as a Bitcoin play than as a software company. This is evident in the valuation mismatch—the company's market cap is lower than the value of its Bitcoin holdings.
Adding fuel to the fire, Strategy's CEO, Phong Le, recently acknowledged that the company could sell reserves under extreme conditions. This is a significant shift in tone. For years, Saylor has been an unwavering Bitcoin maximalist, preaching the gospel of hodling (holding on for dear life). Now, the company is preparing for risks, building a $1.44 billion cash buffer for interest payments and dividends. Michael Saylor Defends Strategy as MSCI Index Risk Looms
The potential MSCI exclusion isn't just about billions in outflows; it's about the fundamental viability of Strategy's business model. If the company is forced to deleverage its Bitcoin holdings to maintain index eligibility or to weather market downturns, it could trigger a cascade of negative consequences. Lower BTC holdings would likely lead to a lower market cap, further increasing the risk of index exclusion and creating a vicious cycle.
Moreover, it raises questions about Saylor's long-term vision. Is he truly building a "Bitcoin-backed structured finance company with the ability to innovate in both capital markets and software," or is he simply riding the Bitcoin wave, hoping it never crashes? The answer, I suspect, lies somewhere in between. Saylor is undoubtedly a visionary, but his unwavering faith in Bitcoin may be blinding him to the risks.
The crypto community is rallying behind Strategy, with some calling for a boycott of JPMorgan (who relayed MSCI's decision). Grant Cardone, a real estate investor and Bitcoin advocate, even claimed to have withdrawn $20 million from Chase and is suing them for misconduct. While this show of support is admirable, it's unlikely to sway MSCI's decision. Index providers are driven by data and rules, not by sentiment.
Ultimately, Strategy's fate rests on Bitcoin's performance and MSCI's decision. But regardless of the outcome, this episode serves as a stark reminder of the risks associated with tying a company's fortunes so closely to a single, volatile asset. Saylor's bold bet on Bitcoin may have paid off handsomely in the past, but the market seems to be signaling that the party is over.