The global cryptocurrency landscape faces potential upheaval as MSCI, a leading index provider, contemplates the exclusion of companies heavily invested in bitcoin from its primary equity benchmarks. This decision, which could impact billions in passive fund allocations, highlights the evolving perceptions of these firms within the investment community.
Currently, MSCI is evaluating whether digital asset treasury firms (DATs) that allocate over 50% of their balance sheets to cryptocurrencies should be eligible for inclusion in its indexes. This review, which began discreetly in October, has gained momentum following feedback from investors who increasingly classify these companies as resembling investment funds rather than traditional businesses.
The implications of such a move could be significant, particularly for companies like MicroStrategy, Marathon Digital, and Riot Platforms. Analysts at JPMorgan estimate that MicroStrategy alone could experience up to $2.8 billion in selling pressure if it is removed from MSCI”s indexes.
As of the latest reports, MSCI”s review process will continue until December 31, with a final decision expected by January 15. Any changes to the indexes are anticipated to take effect in February. A preliminary list of 38 firms under consideration includes notable players in the crypto space.
JPMorgan has specifically highlighted the risk facing MicroStrategy, which has a significant market exposure tied to passive funds, estimated at around $9 billion. The potential withdrawal from crucial indexes like MSCI USA and the Nasdaq 100 could drastically affect the firm”s market valuation, which has already seen a notable decline in investor confidence.
MicroStrategy”s strategy has relied on the cyclical nature of bitcoin”s market, wherein the firm sells stock to acquire bitcoin, thereby increasing its holdings with every price rally. However, recent trends indicate that this momentum has faltered, with bitcoin losing over 30% of its value since October, dragging the broader crypto market down by over $1 trillion.
The firm”s market net asset value (mNAV), which reflects its enterprise value relative to its bitcoin holdings, has dropped to just above 1.1. This signifies that the stock is now trading only marginally above the actual value of its cryptocurrency reserves, suggesting a waning investor conviction.
Despite these challenges, MicroStrategy continues to accumulate bitcoin. Most recently, the company purchased 8,178 BTC for $835.6 million, raising its total holdings to 649,870 BTC, all acquired at an average cost of $74,433 per coin. As the market dynamics shift, the critical question remains whether institutional backing will persist for this model amidst the cooling momentum of bitcoin.
