MSCI Approval Puts MicroStrategy's Index Membership at Risk

Michael Saylor's Bitcoin-centric enterprise might be removed from key global stock indices, which could compel investment funds to sell their shares even if they retain confidence in the company.

On Thursday, MSCI approved new rules that would eliminate companies operating more like investment vehicles than standard businesses.

An earlier simulation from MSCI flagged Strategy, formerly MicroStrategy, and Japan's Bitcoin purchaser Metaplanet as possible removals.

UK uranium investor Yellow Cake was also identified, while SharpLink, which holds Ethereum in its treasury, might be added to a watchlist.

Why Does MSCI Want Strategy Out?

MSCI builds benchmarks such as MSCI World and MSCI Emerging Markets, and fund managers use these to determine their share holdings. ETFs that track those indices automatically adjust to any constituent changes.

The concern is a simple one: should a company whose value hinges largely on holding assets like Bitcoin be treated the same as a typical operating firm?

Strategy still offers software, but its Bitcoin stash dominates its balance sheet. MSCI's new test evaluates operating assets, business cash flow, and dependence on outside financing.

Strategy disagrees with that assessment.

"We believe the proposal is misguided," it stated in its response to MSCI.

Could This Trigger a Stock Sell-Off?

If Strategy is removed, ETFs following the affected indexes would normally have to dispose of MSTR shares during rebalancing.

That would create selling pressure no matter what Bitcoin trades at or how investors feel about Strategy.

Strategy estimates that MSCI-linked funds hold about 13 million shares, roughly 3.1% of its basic shares outstanding, and argues that amount is under a normal day's trading volume.

Other market participants could step in to buy those shares, so a price drop is not inevitable.

On Thursday, MSTR advanced 5.62% to close at $151.29. That rise came before MSCI's post-market announcement.

The longer-term threat is diminished demand for MSTR shares, which could complicate efforts to raise capital for further Bitcoin acquisitions.

Removal from indexes would not delist MSTR from Nasdaq, nor would it force Strategy to sell its Bitcoin.

MSCI will release its affected-company list on November 11. The rules take effect after November 30, and existing constituents receive protection via a two-annual-filing test before being removed.