**JPMorgan Warns of Major Risks for MSTR Amid MSCI Review**
**Meta Description:** JPMorgan highlights potential billions in outflows for MSTR if MSCI excludes it from major indices, raising concerns over its leveraged Bitcoin strategy.
**URL Slug:** jp-morgan-mstr-msci-exclusion-risk
**Headline:** JPMorgan Raises Alarm Over MSTR’s Future as MSCI Decision Approaches
In a recent analysis, JPMorgan has flagged significant risks for MicroStrategy (MSTR) as the MSCI prepares to make a pivotal decision on January 15 regarding the inclusion of companies with substantial digital asset holdings in traditional equity indices. This scrutiny comes at a critical juncture for MSTR, which has transformed into a leveraged Bitcoin holding vehicle under the leadership of Michael Saylor over the past five years.
The MSCI is contemplating a new rule that would exclude companies whose digital asset holdings exceed 50% of their total assets. MSTR falls into this category, raising concerns about its future in major equity benchmarks. With a market capitalization of approximately $59 billion and nearly $9 billion invested in passive index-tracking funds, analysts warn that exclusion from these indices could trigger significant selling pressure, potentially leading to outflows of up to $2.8 billion. If other index providers follow suit, the outflows could escalate to as much as $8.8 billion.
The timing of this warning is particularly precarious for MSTR. The company’s stock has underperformed Bitcoin in recent months, with its premium—measured by the “mNAV” spread between enterprise value and Bitcoin holdings—plummeting to just above 1.1, the lowest level since the pandemic began. Over the past six months, MSTR’s value has declined by approximately 40%, with 11% of that loss occurring in just the last five trading days. The strategy that fueled MSTR’s growth—raising equity to buy Bitcoin and benefiting from market reflexivity—now faces significant structural challenges, as the stock has dropped over 60% since its peak last November.
Additionally, MSTR’s perpetual preferred shares have seen a sharp decline, with yields on its 10.5% notes rising to 11.5%. A recent euro-denominated preferred issuance fell below its discounted offer price within two weeks, further indicating market concerns.
For years, MSTR’s inclusion in the Nasdaq 100, MSCI USA, and MSCI World indices has facilitated the integration of Bitcoin into mainstream investment portfolios. Passive flows from ETFs and mutual funds have supported MSTR’s liquidity and visibility among institutional investors. However, JPMorgan’s recent findings suggest a shift in market perception, with digital asset treasury companies increasingly viewed as investment funds rather than traditional operating businesses. This distinction poses a significant challenge, as investment funds are not eligible for index inclusion.
While MSCI has stated it does not speculate on future index changes, the ongoing evaluation of digital asset-heavy balance sheets raises critical questions about their place in equity benchmarks. Although active managers are not obligated to adjust their portfolios in line with index changes, JPMorgan cautions that even a single exclusion could have far-reaching implications for MSTR.
**FAQ: What could happen to MSTR if MSCI excludes it from major indices?**
If MSCI excludes MSTR from its indices, the company could face significant selling pressure, potentially resulting in billions in outflows as institutional investors adjust their portfolios.
