Bitcoin : MSCI's new rules expose Strategy to exclusion

The bitcoin market faces a new challenge that goes beyond price fluctuations. Strategy, Michael Saylor’s company known for its substantial cryptocurrency reserves, risks losing its place in some major stock indices. On Thursday, MSCI approved new rules targeting companies whose activity resembles an investment vehicle rather than a traditional business. This decision could alter demand for Strategy shares and complicate its future purchases.

MSCI wants to distinguish operational companies from investment companies

MSCI constructs benchmark indices like MSCI World and MSCI Emerging Markets. Fund managers rely on these indices to select their investments, while index ETFs automatically track their changes. Therefore, a change in their composition can lead to buying or selling shares, independently of individual investors’ choices.

The new rules target companies whose value relies mainly on holding assets rather than on traditional operational activity. In a previous simulation, MSCI identified Strategy, formerly MicroStrategy, and Metaplanet, a Japanese company that buys bitcoin, among potentially affected companies. Yellow Cake was also included in this analysis, while SharpLink could join a watchlist.

To assess these companies, MSCI notably examines their operational assets, cash flows, and reliance on external financing. Strategy continues to sell software, but its cryptocurrency reserves now represent the major part of its balance sheet. The company disputes this approach and believes MSCI’s proposal relies on a distinction unsuitable for its model. It expressed disagreement in its official response to the organization.

Bitcoin: why Strategy risks pressure on its stock

A possible exclusion from the affected indices could require ETFs that replicate them to sell their MSTR shares during their rebalancing. These sales would put additional pressure on the stock, even if investors maintain confidence in the company. The mechanism would then depend on the index rules, not only on the evolution of the cryptocurrency market.

According to Strategy’s estimates, funds linked to MSCI indices hold about 13 million shares. This volume represents nearly 3.1% of the company’s basic shares outstanding. However, Strategy notes that this amount remains lower than the volume usually traded in one day. Other investors could therefore absorb the sales without necessarily causing a significant price drop.

The MSTR stock rose 5.62% on Thursday to close at $151.29. This increase occurred before the MSCI announcement, published after the US markets closed. The stock’s reaction to this decision remains an element to watch. In the longer term, reduced demand for Strategy shares could limit its ability to raise funds to strengthen its bitcoin reserves.

An exclusion that would not force Strategy to sell its reserves

Exiting the MSCI indices would not mean Strategy must abandon its business model. The company would keep its Nasdaq listing and could continue holding its digital assets. The measure would mainly concern its eligibility for the indices and the possible consequences on investments that track them. It would not automatically trigger a sale of its reserves.

The timeline is now a central point for investors. MSCI plans to publish the list of affected companies on November 11, before applying the rules after November 30. Companies already included in the indices would benefit from protection based on a two-year buffer test before possible exclusion.

In the coming weeks, bitcoin will remain an important element to monitor to understand the company’s strategy evolution. However, MSCI’s final decision could primarily influence institutional demand for the MSTR stock. Upcoming announcements will clarify the scale of the risk and its possible impact on the funding Strategy’s future purchases.