As the largest corporate holder of Bitcoin, Strategy is struggling with the decline in the token’s price, and this potential selling risk has also emerged.
Strategy holds approximately 60 billion US dollars worth of cryptocurrencies, but has limited cash reserves. As a result, concerns are growing that its digital asset holdings might be sold off, further intensifying the selling pressure in an already illiquid and weak-demand cryptocurrency market.
JPMorgan Chase said that the share price of Strategy Inc. has already factored in the risk of being removed from major stock benchmark indices, and views the upcoming MSCI decision as a potential catalyst for an increase, although the removal would still trigger passive fund outflows.
JPMorgan Chase had previously estimated that losses could reach as high as $2.8 billion if index-tracking funds pulled out. But after the report was released, the stock price plunged – the price of the strategy fund dropped by about 20% and is now close to the value of the company’s Bitcoin holdings – after which the bank believes that most of the losses have been reflected in the stock price.
“We believe that if MSCI removes MicroStrategy from the index, the downside for MicroStrategy and Bitcoin will be limited, as the impact of the index removal has already been fully digested by the market,” wrote the analyst team led by Nikolaos Panigirtzoglou in a report. “On the other hand, if MSCI’s decision on January 15th is positive, both MicroStrategy and Bitcoin could rebound strongly and return to the levels seen before October 10th.”
Michael Saylor’s Bitcoin-buying company (formerly known as MicroStrategy) may be removed from indices such as the MSCI US Index due to a proposed rule. The rule aims to exclude companies with digital asset holdings exceeding 50% of their total assets. A decision is expected to be made by January 15.
The company’s co-founder, Saylor, began purchasing Bitcoin in 2020 with the aim of hedging against inflation. The company has raised tens of billions of dollars through equity and fixed-income securities. As the price of Bitcoin has plummeted, liquidity problems have become increasingly prominent, making it difficult for Strategy to raise funds by issuing new shares while also having to pay high interest on financial products such as perpetual preferred stocks.
The company has recently taken measures to build up dollar reserves in an effort to convince investors of its ability to meet its financing obligations after the market strongly opposed its complex financing model.
According to a report by Reuters on Wednesday, Strategy is communicating with MSCI regarding the latter’s upcoming decision on whether to remove it from its indices. Reuters quoted Saylor as saying during a break at the Binance event in Dubai that Strategy’s CEO Phong Le told Bloomberg Television on Tuesday that they have begun “communicating” with MSCI.
JPMorgan Chase reaffirmed its volatility-adjusted comparison of Bitcoin to gold prices, which indicates that the theoretical price of Bitcoin could approach $170,000 within the next six to twelve months. Although this forecast is speculative, it highlights the potential upside the bank saw before MSCI’s final decision was made.
