Michaela
Matt Hougan, Chief Investment Officer at Bitwise, has dismissed concerns that Michael Saylor’s Strategy might be forced to sell its Bitcoin holdings, emphasizing that neither market fluctuations nor index adjustments create any obligation to do so.
Key Points
- Matt Hougan states Strategy’s Bitcoin holdings are safe from forced sales.
- MSCI is evaluating the removal of digital asset treasury companies like MSTR from its indexes, decision expected January 15.
- Market impact of index changes is typically priced in, and Strategy’s debt obligations do not threaten Bitcoin holdings.
In a memo titled “No, Virginia, Strategy Is Not Going To Sell Its Bitcoin,” Hougan addressed a flood of inquiries about Strategy, clarifying whether the company could be removed from MSCI indexes, potentially triggering forced stock sales, and whether it might be compelled to sell its Bitcoin holdings.
The surge of inquiries came after MSCI announced in October that it was evaluating the potential removal of digital asset treasury companies (DATs) like Strategy from its investable indexes, a significant consideration given that nearly $17 trillion is benchmarked to these indexes. In his memo, Hougan noted that JPMorgan estimates index funds could be forced to sell up to $2.8 billion of MSTR stock if the company is excluded.
Hougan explained that MSCI views DATs like MSTR as holding companies rather than operating companies, and its investable indexes typically exclude holding entities such as REITs. Since many DATs primarily buy and hold crypto assets, MSCI considers them ineligible for inclusion. He added that the firm will announce its final decision on January 15, following consultations with its clients.
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Hougan noted that MSCI’s decision could reasonably go either way. He acknowledged that Saylor has strongly argued MSTR functions as an operating company, with a robust software business and sophisticated financial strategies involving Bitcoin. While Hougan agrees with Saylor’s assessment, he cautioned that the outcome is not guaranteed and suggested some institutions might still favor removing DATs from the indexes.
Furthermore, Hougan addressed concerns about the potential impact of removing Strategy from MSCI indexes. While $2.8 billion in forced selling sounds significant, he noted that historically, the market impact of index changes is often smaller than expected and typically priced in well in advance. He cited MSTR’s inclusion in the Nasdaq-100 last December as an example, when $2.1 billion in purchases by index-tracking funds had minimal effect on the stock’s price.
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“I think a small part of the reason MSTR is down since October 10 is that the market is already pricing in a removal. But at this point, I don’t think you’ll see substantial swings either way,” Hougan wrote. “Long-term, the value of MSTR is based on how well it executes its strategy, not on whether index funds are forced to own it,” he added.
Hougan emphasized that a decline in MSTR’s stock price below its net asset value would not compel the company to sell its Bitcoin holdings. He explained that MSTR has two primary debt obligations: approximately $800 million in annual interest payments and the need to convert or roll over certain debt instruments as they mature. Interest payments are not an immediate concern, as the company holds $1.4 billion in cash, sufficient to cover dividends for the next 18 months. Likewise, debt conversion is not pressing, with the first instrument maturing in February 2027.
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MICHAELA
Michaela is a news writer focused on cryptocurrency and blockchain topics. She prioritizes rigorous research and accuracy to uncover interesting angles and ensure engaging reporting. A lifelong book lover, she applies her passion for reading to deeply explore the constantly evolving crypto world.
