Bitcoin News Today: MSCI's Index Ruling Could Reclassify MicroStrategy, Undermining Bitcoin's Traditional Finance Push

JPMorgan Chase has warned that a potential decision by MSCI to exclude MicroStrategy (MSTR)-a company heavily leveraged to Bitcoin holdings-from major equity indices could trigger billions in passive outflows, threatening the firm's valuation and liquidity. The bank cited the index provider's January 15 ruling on whether digital-asset-focused companies should remain in traditional benchmarks as a pivotal moment for Strategy, which holds over $56 billion in Bitcoin. If MSCI acts alone, the firm could face $2.8 billion in outflows, with total losses reaching $11.6 billion if other index providers follow suit, according to analysts led by Nikolaos Panigirtzoglou.

The warning comes as Strategy's stock has underperformed Bitcoin in recent months, with its market value now trading at just a 0.90 premium to its Bitcoin holdings-a sharp decline from a 2.7 multiple a year ago according to market data. JPMorgan attributed this to growing concerns over index exclusion rather than Bitcoin's price slump. The company's inclusion in indices like the Nasdaq 100 and MSCI USA has indirectly funneled Bitcoin exposure into institutional and retail portfolios, a dynamic that could reverse if it is removed.

MSCI is evaluating whether firms with digital-asset holdings exceeding 50% of total assets should remain in equity benchmarks. Strategy, which has no traditional revenue stream and operates as a Bitcoin treasury, sits at the extreme end of this category. The index provider's consultation period ends December 31, with a decision expected by January 15. Analysts argue that exclusion would reclassify Strategy as an investment fund-a category ineligible for index inclusion-undermining its current structure according to market analysis.

The risks extend beyond passive funds. Active managers, while not obligated to follow index changes, could face reputational damage, higher funding costs, and reduced liquidity if Strategy is delisted. JPMorgan noted that the firm's recent share price drop-down over 60% from its November 2024 high-reflects these structural vulnerabilities. Additionally, its perpetual preferred shares have sold off sharply, with yields on 10.5% notes climbing to 11.5%.

Michael Saylor, Strategy's executive chair, has defended the firm's Bitcoin-focused model, envisioning a $1 trillion Bitcoin balance sheet to reshape global finance. However, the current market environment-marked by a 30% decline in Bitcoin's price from October highs and $1 trillion in crypto market losses-has intensified scrutiny of the strategy.

The January 15 decision could mark a turning point. If MSCI rules against inclusion, Strategy's valuation may become fully tied to Bitcoin's price, eroding the reflexive premium that fueled its growth. This would upend Saylor's vision of leveraging Bitcoin to create new financial products, including Bitcoin-backed credit and insurance services.