Strategy Inc. (MSTR.US), led by Michael Saylor, has emerged as one of the hardest-hit companies in the recent cryptocurrency downturn. The firm now faces significant risks: its much-touted Bitcoin "vault" model has largely failed, and it risks being removed from key benchmark indices like the Nasdaq 100, which have long justified its presence in mainstream portfolios.
As Bitcoin’s price plunged over 30% from its all-time high, dipping below the critical $90,000 threshold into bear market territory, Strategy—once hailed by Wall Street as "the most successful investment bank in human financial history"—has seen its stock plummet more than 60% since its July peak.
In a recent report, analysts at JPMorgan warned that Strategy, often dubbed the "Bitcoin whale" or "Bitcoin shadow stock," could lose its place in major indices like the MSCI USA Index and Nasdaq 100. If MSCI proceeds with such adjustments, up to $2.8 billion in passive funds could exit the stock, with billions more at stake if other index providers follow suit. JPMorgan estimates that passive ETFs linked to Strategy currently account for nearly $9 billion in market exposure.
With its market capitalization collapsing to around $50 billion, a decision on its index status could come as early as January 15. For a company that rose to prominence by bundling crypto exposure into a tradable stock, exclusion from benchmarks threatens not just liquidity but also the institutional credibility once promised by its Bitcoin vault model.
Strategy’s ascent was built on an innovative flywheel strategy: issuing shares to buy Bitcoin, riding the crypto’s historic bull run, and repeating the cycle. At its peak, the firm’s market cap far exceeded the value of its crypto holdings. Today, that premium has nearly vanished, with its valuation barely above its Bitcoin reserves—a sign that investor faith in the "Bitcoin vault" model is fading fast.
"While active managers aren’t forced to mirror index changes, exclusion from major benchmarks is widely perceived as negative," wrote JPMorgan analysts led by Nikolaos Panigirtzoglou, noting risks to Strategy’s liquidity, funding costs, and investment appeal.
The latest crypto downturn has hit retail traders, altcoin speculators, and leveraged miners alike—a stark contrast to September, when bulls bet heavily on Strategy’s imminent inclusion in the S&P 500. Back then, its market cap, profitability, and trading liquidity were seen as meeting the index’s criteria.
However, MSCI signaled potential trouble in October, stating that digital asset vaults might resemble ineligible investment funds. The index provider proposed excluding firms holding over 50% of their assets in crypto from its Global Investable Market Indexes. An MSCI spokesperson declined to speculate on future adjustments.
**The Fall of a "Legendary Investment Bank"** Since peaking in November, Strategy’s stock has crashed over 70%, erasing the premium that once made it a darling of momentum traders and crypto investors. Still, shares remain up 1,300% since Saylor’s first Bitcoin purchase in August 2020, outperforming all major stock indices.
Yet as potential index exclusions loom, that legacy is at risk. The crypto selloff has also battered Strategy’s newer financing tools. Its perpetual preferred shares—a cornerstone of Saylor’s recent strategy—have tumbled, with yields on its 10.5% coupon notes rising to 11.5%. A rare euro-denominated preferred offering launched this month quickly fell below its discounted issue price.
"The premium has collapsed in recent weeks," said Michael Youngworth, Bank of America’s global convertible strategist, adding that "raising capital now would be extremely challenging."
These pressures highlight how Strategy’s model relies on crypto mania and retail investor confidence—both of which can evaporate swiftly. Meanwhile, index inclusion, long a silent engine of modern markets, risks becoming a double-edged sword. While it once funneled trillions into ETFs and mutual funds, exclusion could amplify outflows.
**mNAV Plunge Exposes Model’s Limits** Strategy’s troubles extend beyond indices. Bitcoin’s 30% drop from October highs has wiped over $1 trillion from crypto’s total market cap. The firm’s mNAV (market cap-to-Bitcoin holdings ratio) has sunk to just 1.1, signaling that its core valuation metric—once a tailwind—is now a drag.
Historically, Strategy issued shares or convertibles to buy more Bitcoin when its stock traded above NAV, creating recursive leverage. This "flywheel" relied on perpetual premiums, convertible arbitrage, and bullish narratives. But as dilution fears grow and Bitcoin stumbles, the model’s fragility is laid bare.
Strategy still holds nearly 650,000 Bitcoins and continues issuing preferred shares to accumulate more. Yet markets are no longer buying the crypto bull story. Even indices—once seen as legitimizing forces—now test how much "crypto faith" the system can bear.
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