Strategy faces potential $2.8 billion stock selloff over MSCI index exclusion

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Strategy faces potential stock selloff

Highlights

MSCI could remove Strategy from its indexes under revised eligibility rules.
JPMorgan estimated a potential selling of $2.8 billion, while MSTR fell 16.6% in two weeks.
Strategy holds 850,364 BTC, and index exclusion would not require Bitcoin sales.

MSCI is scheduled to publish its index review shortly after 11 p.m. Central European Time on Wednesday, with changes taking effect after the November 30 market close. According to crypto.news, JPMorgan previously estimated that removing Strategy from MSCI benchmarks could generate approximately $2.8 billion in selling, although that projection was based on an earlier version of the eligibility rules.

New MSCI rules threaten Strategy index membership

The potential exclusion follows an October 15 methodology change targeting companies whose financial characteristics more closely resemble investment funds than operating businesses. MSCI first evaluates whether a company holds substantial operating assets, then applies additional tests involving expenses, cash flow, asset valuations, and reliance on external financing.

Companies failing at least four of five supplementary tests may become ineligible. For existing constituents, the assessment generally covers the two most recent annual reporting periods, although newer financial statements can also be considered.

Strategy has acknowledged the risk in its disclosures and expects its common shares to be removed under the revised criteria. Its substantial Bitcoin holdings have placed its business model under particular scrutiny, while other cryptocurrency treasury companies, including Japan's Metaplanet, face similar questions.

Institutional investors face potential forced selling

Strategy previously reported that MSCI-tracking investment funds held approximately 13 million MSTR shares, equivalent to about 3.1% of its basic shares outstanding. At the November 10 closing price of $121.07, those holdings were worth roughly $1.57 billion.

The larger JPMorgan estimate suggests potentially broader selling pressure, but neither figure represents confirmed future outflows. Actual transactions will depend on the final index decision and how funds adjust their portfolios before implementation.

MSTR has already declined approximately 16.6% from its October 28 closing price of $145.16. Some market observers believe investors have anticipated much of the potential exclusion, limiting the possibility of a prolonged selloff.

Bitcoin buying strategy faces a financing test

Strategy has continued expanding its cryptocurrency holdings despite the decline in its share price. On November 9, the company disclosed the purchase of another 1,036 Bitcoin, bringing its total to 850,364 BTC as of November 8. It also repurchased approximately $188.3 million of STRC preferred shares, financed through common stock sales.

An MSCI exclusion would not force Strategy to liquidate Bitcoin. The more significant concern is whether sustained weakness in MSTR shares could make future equity offerings less attractive, reducing the company's flexibility to fund additional purchases.

As we previously reported, Strategy launches Bitcoin credit model to track capital risk.

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