Index Provider's Potential Policy Shift
Michael Saylor, Chairman of the Board of Directors of MicroStrategy (MSTR), a company known for its strategy of accumulating Bitcoin (BTC) reserves through its balance sheet, has confirmed that MSCI is holding talks with the organization regarding the possibility of removing the company from its indices. Saylor told Reuters that they are in communication with MSCI throughout this process, with ongoing contacts ahead of a critical decision.
MSCI is considering a policy to exclude companies whose business models rely heavily on cryptocurrency acquisitions from its indexes, arguing that such companies resemble mutual funds. The decision is expected to be announced by January 15. According to JP Morgan, MicroStrategy's removal from the MSCI USA and MSCI World indexes could lead to outflows of up to $8.8 billion if other index providers follow suit.
Saylor's Perspective on Potential Impact
Michael Saylor, however, argues that these expectations are exaggerated. "I don’t think it makes any difference," said the famous CEO, adding that JP Morgan’s fund outflow projections may not be accurate.
MicroStrategy's Financial Vulnerability and Strategy
Bitcoin's steepest monthly decline since mid-2021 in November directly impacted MicroStrategy, whose balance sheet is heavily reliant on Bitcoin. Earlier this week, the company sharply revised down its year-end profit forecast, announcing a potential loss of up to $5.5 billion. A month earlier, the company had forecast a profit of $24 billion.
Saylor noted that MicroStrategy is inherently vulnerable to volatility:
“The stock will naturally be volatile because the company is built on amplified Bitcoin. If Bitcoin falls by 30-40%, the stock will fall even more. That's the nature of this structure.”
Saylor also argued that the company operates with 1.11 leverage and is capable of withstanding even a 95% crash in Bitcoin's price.
Implications of Index Inclusion and Exclusion
MicroStrategy's inclusion in indices was a key driver of demand for its stock, particularly through MSCI-based ETFs and other passive investment vehicles. A potential delisting could raise questions about the company's ability to raise funds through equity and debt in the future.
Among the new criteria MSCI is discussing is removing companies from its indexes if their digital asset positions exceed 50% of total assets. This directly targets companies like MicroStrategy, which have a Bitcoin-heavy balance sheet.
On the other hand, Saylor believes such a decision would not lead to any meaningful change in the company's operation or long-term strategy.