Is Michael Saylor’s Strategy in danger as Bitcoin collapses?

Shares of Michael Saylor-led Strategy could be at risk as Bitcoin price has fallen to multi-month lows below $100,000. 

Michael Saylor-led Strategy is the largest Bitcoin-holding public company in the world, with a massive Bitcoin war chest of 649,870 BTC that is worth roughly $48.3 billion as of today. This is nearly double the amount held by the U.S. government, which ranks second on the list.

Strategy shares nearly doubled in price to reach a peak of $455.90 earlier in July, but have since been on a steady downtrend. The downtrend accelerated in October as Bitcoin fell from its all-time high of $126,000 to a multi-month low of $82,175 earlier today.

Bitcoin (BTC) lost the $100,000 psychological support level earlier this month and was down nearly 32% from its all-time high. Recent macroeconomic concerns, including weaker-than-expected jobs data and fading expectations for another interest rate cut by the Federal Reserve this year, have weighed on overall liquidity in digital asset markets.

Strategy’s stock typically moves in tandem with Bitcoin’s price, often trading at a premium to its net asset value. This phenomenon, known as the “Saylor Premium,” stems from investor sentiment that views MSTR as a leveraged proxy for Bitcoin exposure. This inflated valuation allows the company to raise funds through equity offerings or convertible debt instruments, with the proceeds used to accumulate more BTC, reinforcing the feedback loop.

However, with Bitcoin underperforming, MSTR shares have mirrored that decline. Investor sentiment has turned cautious, especially with the company having issued additional shares into the market to fund its aggressive Bitcoin buying. This has raised concerns about potential dilution of shareholder value and the long-term sustainability of its Bitcoin accumulation strategy.

As of the latest data, MSTR shares have fallen by 41.3% over the past month and are now down more than 55% since the beginning of the year.

Saylor, however, has downplayed concerns around Bitcoin’s recent underperformance in a recent interview.

“The company is engineered to take an 80% to 90% drawdown and keep on ticking, I think we’re pretty indestructible,” Saylor told Fox Business.

MSCI delisting could put Strategy at risk

Investors are also concerned about MSCI considering a potential removal of MSTR from its index list. 

Last month, MSCI said it was reviewing a proposal that would exclude companies whose core business model relies on accumulating Bitcoin or other cryptocurrencies, particularly when those assets represent at least 50% of their total holdings. The consultation on this proposal is still ongoing, with a decision due by Jan.15.

Analysts at JPMorgan, the global investment banking giant, have raised concerns regarding this. In a note published Thursday, the bank warned that exclusion from MSCI could reverse a key trend that has previously allowed Bitcoin exposure to seep into both retail and institutional portfolios via index inclusion.

Strategy is currently included in the Nasdaq-100, NASDAQ Composite, Russell 2000, and Russell 3000. It also features in global indexes such as the MSCI USA and MSCI World.

“This index inclusion has enabled Bitcoin exposure to indirectly encroach into both retail and institutional investor portfolios,” the analysts wrote. “However, with MSCI now considering removing MicroStrategy and other digital asset treasury companies from its equity indices, this previous indirect encroachment could go into reverse.”

JPMorgan analysts noted that index-focused funds currently hold a substantial portion of Strategy shares, and being removed from a major benchmark could weigh heavily on investor sentiment by reducing the stock’s visibility and accessibility within institutional portfolios.

“While active managers are not obligated to follow index changes, exclusion from major indices would certainly be viewed negatively by market participants. It raises concerns about the cost and the ability of MicroStrategy to raise equity and debt in the future,” the analyst warned.

Less index trading could result in “lower trading volumes and liquidity” and could deter institutional players. 

In such a scenario, JPMorgan analysts expect outflows from passive strategies could reach as high as $2.8 billion. If other index providers and exchanges follow MSCI’s lead, the cumulative outflows could balloon to as much as $11.6 billion.