The steadfast belief in Bitcoin comes at a cost: one must remain calm and patient when the market experiences volatility.
Written by: Matt Hougan, Chief Investment Officer of Bitwise
Translated by: Luffy, Foresight News
Recently, my inbox has been flooded with questions about Bitcoin reserve-listed company MicroStrategy, specifically concerning two main issues:
Will MicroStrategy be removed from the MSCI index, leading to forced selling of its stock?
Will MicroStrategy be forced to sell its held Bitcoin?
Let’s analyze these one by one.
The Relationship Between the MSCI Index and MicroStrategy
On October 10, MSCI announced that it is considering removing crypto asset reserve companies like MicroStrategy (DAT) from its investable index. This is significant because nearly $17 trillion in assets are benchmarked to these indices. JPMorgan estimates that if MicroStrategy is removed from the index, index funds may be forced to sell up to $2.8 billion worth of MSTR stock.
You might wonder: Why would MSCI do this? Their viewpoint is that crypto asset reserve companies like MicroStrategy are more akin to holding companies rather than operating companies. MSCI's investable index already excludes holding companies like real estate investment trusts, and most crypto asset reserve companies primarily engage in buying and holding crypto assets, leading MSCI to believe they should not have a place in the index. After communicating with clients, MSCI will announce its final decision on January 15.
I cannot predict MSCI's final ruling. As a seasoned researcher in the index field, having served as the editor of the academic journal "Index Magazine" for ten years, I see two possibilities. Michael Saylor and others have strongly countered that MicroStrategy is a legitimate operating company, not only possessing a robust software business but also engaging in complex financial engineering around Bitcoin. This argument is reasonable, and I personally agree with its business attributes. However, this is not a foregone conclusion, and I can envision some institutions holding opposing views. Given the controversial nature of crypto asset reserve companies and MSCI's current intention to remove them, I speculate that the probability of MicroStrategy being removed from the index is at least 75%.
However, I do not believe that being removed from the index will have a significant impact on its stock. The $2.8 billion sell-off seems large, but based on my years of observing index inclusion and exclusion events, the actual impact is often smaller than expected and tends to be priced in by the market in advance. For example, when MicroStrategy was included in the Nasdaq 100 index last December, funds tracking that index needed to buy $2.1 billion worth of MSTR stock, yet its stock price hardly fluctuated.
I believe that the slight decline in MSTR's stock price since October 10 is partly due to the market already pricing in the expectation of "being removed from the index." However, at this stage, its stock price is unlikely to experience significant volatility.
In the long run, MSTR's value depends on the effectiveness of its strategic execution, not on whether index funds are forced to hold its stock.
MicroStrategy's Bitcoin Holdings
Another question is whether MicroStrategy will sell its Bitcoin. The logic of the bears' concerns is as follows:
MicroStrategy is removed from the MSCI index;
Its stock price plummets, falling far below its net asset value (NAV);
Ultimately, it is forced to sell Bitcoin.
This logic seems coherent, but unfortunately, it is completely unfounded. MSTR's stock price falling below its net asset value will not trigger a sale of Bitcoin; you can check the relevant details and calculations yourself.
MicroStrategy has only two key obligations regarding its debt: first, it must pay approximately $800 million in interest each year, and second, it must complete conversions or extensions when certain debt instruments mature.
Interest payments are not a concern in the short term. The company currently holds $1.4 billion in cash, which is more than enough to cover a year and a half of interest payments.
Similarly, debt conversions are not an immediate issue. The first batch of debt instruments does not mature until February 2027, and the amount is only about $1 billion, which is a drop in the bucket for a company holding $60 billion in Bitcoin.
If MSTR's stock price continues to decline, will insiders pressure the company to sell Bitcoin? The likelihood is extremely low. Michael Saylor himself controls 42% of the voting shares, and it is hard to find anyone more steadfast than him regarding the long-term value of Bitcoin. In 2022, MSTR's stock price was also at a discount, yet he did not sell.
I understand why bears are eager to hype up the "doomsday" narrative surrounding MicroStrategy. If MicroStrategy were forced to sell $60 billion worth of Bitcoin all at once, the impact on the entire Bitcoin market would be devastating, equivalent to two years' worth of inflows into a Bitcoin ETF. However, given that the company has no maturing debt before 2027 and cash sufficient to cover foreseeable interest expenses, such an extreme scenario is impossible. We should also view the current situation from a more macro perspective: at the time of writing, Bitcoin's price is around $92,000, down 27% from its historical peak, but still 24% higher than MicroStrategy's average Bitcoin holding cost ($74,436). The so-called "doomsday" is nothing but nonsense.
Conclusion
If you truly want to worry about certain aspects of the crypto industry, there are indeed many points worth paying attention to. For instance, I am slightly concerned about the pace of market structure legislation at the congressional level; however, as government agencies return to normal operations, I believe the progress of the legislation will accelerate. I am also worried that some small, poorly managed crypto asset reserve companies may go bankrupt; at the same time, I expect that in 2026, crypto asset reserve companies will not significantly increase their Bitcoin holdings, which means the market will lose an important source of near-term demand.
But for MicroStrategy:
There is no need to worry about the impact of MSCI's decision on MicroStrategy's stock price; the actual impact is far smaller than most people expect and is likely already priced in by the market;
In the short term, there is no reasonable mechanism that would force it to sell Bitcoin; this situation will not occur.
The steadfast belief in Bitcoin comes at a cost: one must remain calm and patient when the market experiences volatility. No one understands this better than Saylor and MicroStrategy, as they are equally aware of the other side of this patience. In the long run, this perseverance will ultimately yield rich rewards.
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