Michael Saylor's Strategy faces an index exclusion crisis, with billions of dollars potentially flowing out

Morgan Stanley analysts warned in a recent report that Strategy Inc., a digital asset company founded by Michael Saylor, could be delisted from key benchmark indices such as MSCI USA and the Nasdaq 100. The final decision is expected to be announced before January 15, 2025. If MSCI proceeds with the delisting, approximately $2.8 billion in passive funds could flow out, and if other index providers follow suit, the scale of losses could increase further.

This risk event not only exposes the fragility of the digital asset treasury business model but could also have far-reaching implications for the mainstream institutionalization of cryptocurrencies. As of now, Strategy’s stock price has fallen over 60% from its November 2024 high, and its market cap premium relative to Bitcoin holdings has shrunk to around 1.1 times.

Causes and Impact of Index Delisting Risks

In a statement on October 10, 2024, MSCI revealed that it is consulting the market on whether companies with digital asset holdings exceeding 50% of total assets should be excluded from global investable market indices. This proposal directly targets Strategy’s core business model—that is, raising funds through stock issuance and allocating most assets to Bitcoin. Currently, the company owns about 650,000 Bitcoins, far exceeding the threshold. Index providers typically compare such companies to investment funds, which do not meet the inclusion criteria for stock indices.

Passive fund flows are systemically important to modern capital markets. According to statistics, index funds tracking MSCI USA and Nasdaq 100 provide nearly $9 billion in market exposure to Strategy. If delisted, it could trigger not only direct capital outflows but also significantly weaken stock liquidity and deter institutional investors. Morgan Stanley analyst Nikolaos Panigirtzoglou’s team pointed out that delisting could lead to a reduction in market maker quotes, increasing financing costs and decreasing attractiveness to large asset allocators.

The timing of this risk event is particularly delicate. In September 2024, the market still anticipated Strategy’s inclusion in the S&P 500 index, given its market cap, profitability, and trading liquidity met the entry thresholds. However, as the cryptocurrency market entered a downturn, this narrative shifted. This change in expectations highlights ongoing structural barriers between digital assets and traditional finance and underscores increasing regulatory scrutiny of crypto-related companies.

Evolution and Challenges of Strategy’s Business Model

Strategy’s innovation lies in packaging exposure to cryptocurrencies into stock tickers, providing traditional investors with a compliant way to indirectly participate in Bitcoin. Its business flywheel once operated efficiently: issuing stocks or preferred shares to raise capital, making large-scale Bitcoin purchases, and using market cap appreciation to raise further funds, creating a positive feedback loop. During the 2021–2023 bull market, this model temporarily caused the company’s market value to far exceed the value of its Bitcoin holdings, with a maximum premium exceeding 2 times.

However, this model is highly dependent on market confidence and continuous asset price growth. Since Bitcoin has fallen over 30% from its peak in October 2024, Strategy’s market cap premium has nearly disappeared. Data shows that its enterprise value-to-Bitcoin holding value ratio (mNAV) is now around 1.1, indicating a sharp decline in investor confidence and the perceived additional premium on the business model. This loss of confidence is reflected not only in the stock price but also in the performance of its innovative financing tools.

Recently issued perpetual preferred shares—core instruments of Saylor’s financing strategy—have fallen sharply in price. The 10.5% yield securities issued in March now have an effective yield of 11.5%, indicating market demands for higher risk premiums. Notably, the euro-denominated preferred shares launched earlier this month briefly traded below their already discounted issue price. Michael Youngworth, head of convertible bonds strategies at Bank of America Global Research, commented: “The premium has collapsed in recent weeks, making raising capital increasingly challenging.”

Key Data and Timeline of Events

Key information on Strategy’s potential index delisting:

• Potential indices: MSCI USA, Nasdaq 100
• Decision deadline: January 15, 2025
• Potential passive fund outflow: MSCI delisting could lead to $2.8 billion outflow
• Current Bitcoin holdings: approximately 650,000 BTC
• Stock price performance: down over 60% from November 2024 high
• Market cap/BTC ratio: about 1.1 times
• Preferred stock performance: 10.5% yield securities’ effective yield up to 11.5%

Market Reaction and Industry Chain Effects

The overall downturn in the crypto market has magnified Strategy’s difficulties. The total global digital asset market cap has evaporated over $1 trillion from its peak, impacting various market participants: retail traders, altcoin speculators, leveraged miners, and more. As a representative of the digital asset treasury model, Strategy’s predicament reflects the tightening financing environment and shaken institutional confidence facing the industry.

In the era of passive investing, index inclusion serves as an intangible certification of credibility. Inclusion not only brings stable capital inflows but also symbolizes recognition by the mainstream financial system. For Strategy, losing this certification would be especially detrimental—coinciding with a critical moment for the crypto market to demonstrate that its institutional narrative is not a fleeting trend. If delisted, it could not only affect Strategy itself but also delay further exploration of digital assets by traditional financial institutions.

Companies with similar business models have already begun taking countermeasures. Some peer firms are selling holdings of crypto assets to maintain liquidity or increasing debt leverage to delay liquidation. These actions suggest that the much-hyped “institutional adoption” narrative is facing severe tests. Once regarded as innovative pioneers, digital asset treasury models are now more exposed to mechanical fragility in a down cycle.

Future of Digital Asset and Traditional Finance Integration

The case of Strategy offers important lessons for the digital asset industry. On one hand, it demonstrates the feasibility of exposing cryptocurrency demand via traditional financial instruments and offers investors new asset allocation channels. Since Saylor announced his first Bitcoin purchase in August 2020, Strategy’s stock price has surged over 1300%, far outperforming major stock indices in the same period, showing initial market enthusiasm for innovative business models.

On the other hand, the current predicament reveals risks inherent in this model. When market narratives shift, business models relying on rising asset prices are highly vulnerable to shocks. More critically, the certification mechanisms of traditional finance (such as index inclusion) can reverse due to regulatory or market environment changes, amplifying negative impacts through passive investment channels. This dynamic highlights the tension in the ongoing integration of digital assets with the traditional financial system.

Looking ahead, digital asset companies need to improve resilience and transparency of their business models—diversifying assets, establishing risk hedging mechanisms, and engaging more closely with regulators. Simultaneously, mainstream index providers should clarify classification standards for digital asset companies to provide market stability. Only through joint efforts can the sustainable integration of digital assets with mainstream finance be achieved.

The risk of Strategy’s delisting is not just a company crisis but also a stress test for the institutionalization process of the digital asset industry. It exposes the fragility of innovative business models amid market cycles and reflects the dual nature of traditional finance’s certification mechanisms toward emerging sectors. As the January 15 decision approaches, market attention will focus on how this event reshapes the boundary between digital assets and mainstream finance, and whether it becomes a pivotal point for industry efforts toward more stable development.

FAQ

Why might Strategy Inc. be delisted from major indices?

MSCI proposed excluding companies with digital asset holdings exceeding 50% of total assets. Strategy’s Bitcoin holdings far surpass this threshold, and MSCI considers it closer to an investment fund rather than an operating company, thus facing delisting risk.

If delisted, what specific impacts could Strategy face?

Delisting could trigger approximately $2.8 billion in passive fund outflows, push up financing costs, reduce stock liquidity, weaken institutional investor interest, and harm the company’s market reputation, creating a negative feedback loop.

How many Bitcoins does Strategy currently hold?

As of the latest data, Strategy holds around 650,000 BTC and continues to increase holdings through preferred stock issuance. However, its market cap to Bitcoin holding value ratio has fallen to about 1.1.

How has Strategy’s stock performed recently?

Since the November 2024 high, the stock has fallen over 60%. Since its initial Bitcoin purchase in August 2020, it has gained over 1300%, significantly outperforming major indices.

What does this event mean for the crypto industry?

Strategy’s case exposes vulnerabilities of the digital asset treasury model during market downturns and underscores the importance of building more resilient business models. It also highlights the challenges in certifying crypto assets within traditional financial frameworks.