Wall Street investment bank JPMorgan ( JPM ) said Strategy’s ( MSTR ) steep underperformance relative to bitcoin in recent months has far more to do with looming index inclusion risk than with crypto market dynamics.
The strategy’s once-inflated premium over its bitcoin holdings has largely evaporated, but the recent slide reflects growing fears that index provider MSCI may remove the company from key stock indexes when it issues its ruling on Jan. 15, the bank said in a report on Wednesday.
The company founded by Michael Saylor currently sits in major benchmarks including the Nasdaq 100, MSCI USA and MSCI World, the report noted.
Of its roughly $59 billion market cap, about $9 billion sits in passive vehicles, exchange-traded funds (ETFs) and mutual funds that track those indexes, analysts led by Nikolaos Panigirtzoglou wrote.
That embedded presence has allowed bitcoin exposure to seep indirectly into both retail and institutional portfolios, a dynamic the analysts said could reverse sharply if MSCI excludes Strategy and other firms that rely on digital assets as core treasury holdings.
Removal from MSCI alone could drive about $2.8 billion in passive outflows, with as much as $8.8 billion at risk if other index providers follow suit, according to the analysts.
While active managers are not required to reflect benchmark changes, the bank’s analysts argued that losing major index status would deal a jarring blow, casting doubt on Strategy’s ability to tap the equity and debt markets. Lower index-linked activity can also dilute liquidity, making the stock less attractive to large institutional investors.
The strategy’s total market capitalization across equity, debt and preferred relative to its bitcoin holdings has already fallen to its lowest level since the pandemic. A negative ruling on Jan. 15, the bank warned, would push that ratio even closer to one, effectively tying the company’s valuation almost entirely to its bitcoin stack.
Shares were 3.5% higher in premarket trading, around $193.
Read more: Strategy Returns to Big Bitcoin Buys, Adds $835M last week
