Micro strategy faces MSCI index removal risk! $8.8 billion in passive funds may face a large withdrawal

MicroStrategy (Strategy Inc.) is facing the greatest risk in history of being removed from MSCI’s major stock indices due to its excessively high Bitcoin holdings. In a recent report, J.P. Morgan warned that if MSCI adopts a negative decision in its January 15, 2026, resolution, MicroStrategy could be delisted, potentially triggering a mechanical sell-off of $2.8 billion; if other index providers follow suit, the passive outflow could reach as high as $8.8 billion.

MSCI’s New Rules Directly Target MicroStrategy’s Core Business Model

MSCI is evaluating whether to exclude companies with an excessively high proportion of digital assets from its major stock indices, with MicroStrategy at the center of the storm. This risk has emerged because in its October consultation document, MSCI first proposed that “if a company’s crypto assets exceed 50% of total assets, it may no longer be suitable for index inclusion.” This potential rule change is highly targeted and almost tailor-made for MicroStrategy.

Since August 2020, MicroStrategy has adopted an aggressive Bitcoin acquisition strategy, transforming from a traditional business intelligence software company into an almost Bitcoin-holding vehicle. According to Bitcoin Treasuries data, the company’s total Bitcoin holdings have reached 649,870 coins, ranking first globally among corporate holders, far surpassing any other listed company. At current market prices, these Bitcoins are worth over $70 billion, far exceeding the value of its original software business.

As the market increasingly views such companies as investment vehicles rather than operational enterprises, MicroStrategy’s positioning in traditional equity markets has also come into question. MSCI’s stance reflects a fundamental concern in index construction: if a company’s main assets are highly volatile cryptocurrencies rather than cash-flow-generating operations, does it still qualify for stock index inclusion? This issue not only concerns MicroStrategy but could also influence the index status of other Bitcoin-related stocks in the future.

Passive Capital Withdrawal Could Trigger Chain Reactions

According to Morgan Stanley analysis, if only MSCI excludes MicroStrategy, it could trigger a mechanical sell-off of $2.8 billion; if other index providers follow suit, the passive outflow might reach up to $8.8 billion. This figure is nearly 15% of MicroStrategy’s current market cap and could have a catastrophic impact on its stock price.

Layered Analysis of Potential Passive Selling Pressure

MSCI sole exclusion: $2.8 billion (funds tracking MSCI USA, MSCI World, etc.)

Multi-index simultaneous exclusion: $8.8 billion (if Nasdaq-100 and other indices follow)

Liquidity impact: Concentrated selling pressure could cause stock declines far exceeding the proportion of passive funds

For years, MicroStrategy has benefited from index inclusion effects, indirectly allowing Bitcoin to enter the portfolios of many institutions and retail investors. Many pension funds, retirement plans, and index ETFs are constrained by regulations to only invest in stocks included in major indices. Once excluded by MSCI, this “passive capital pipeline” would shift from net inflow to large-scale net outflow.

Even more concerning is the secondary chain reaction. After index adjustments, MicroStrategy’s valuation may become more tightly linked to its Bitcoin holdings, with its mNAV approaching 1. This would imply that the market perceives it almost as a Bitcoin custodial fund rather than a company with operational capabilities. Besides passive withdrawals, other chain effects like thinning liquidity, reduced fundraising capacity, and widening credit spreads could also weaken large institutional investors’ willingness to hold MicroStrategy.

Stock Price and Premium Collapse, Business Model in Trouble

Against the backdrop of Bitcoin dropping about 30% and the overall crypto market losing over $1 trillion in market cap, MicroStrategy’s stock has fallen far more than Bitcoin in recent months. J.P. Morgan believes this decline is driven not by crypto market trends but by investors preemptively pricing in the risk of MSCI exclusion.

Over the past six months, MicroStrategy’s stock has declined about 40%, with an 11% drop in just the last five trading days. Its previously relied-on cycle of “borrowing to buy coins, boosting enterprise value, and refinancing” has become constrained due to the collapse of its premium. Currently, the company’s enterprise value to Bitcoin holdings ratio (mNAV) is only about 1.1, a new low since the pandemic.

The collapse of mNAV reveals fundamental market skepticism about MicroStrategy’s business model. When mNAV is significantly above 1, it indicates the market is willing to pay a premium for MicroStrategy’s “Bitcoin holding platform,” recognizing its financing ability and strategic value. But when mNAV approaches 1, it signals that the market views holding Bitcoin directly as nearly identical to holding MicroStrategy stock, with little additional value.

Adding to the pressure, MicroStrategy’s debt costs are rising. The 10.5% USD preferred shares issued in March have seen yields jump to 11.5%; newly issued Euro-denominated preferred shares this month have fallen below the offering price within two weeks. The decline in bond prices reflects market concerns over MicroStrategy’s debt repayment capacity, suggesting future financing costs will soar and further impair its ability to continue acquiring Bitcoin.

Ongoing Bitcoin Buying Strategy Under Question

Despite multiple pressures, MicroStrategy continues to expand its Bitcoin holdings. On November 17, it purchased 8,178 coins for $835.6 million, bringing total holdings to 649,870 coins, maintaining its position as the world’s largest corporate Bitcoin holder. However, market doubts about the long-term sustainability of this strategy are rising rapidly.

This continuous buying cycle is positive when mNAV is well above 1: high stock premium → low financing costs → more Bitcoin purchases → further valuation increase. But when mNAV approaches 1, the cycle reverses: premium disappears → financing costs rise → Bitcoin buying ability diminishes → valuation further pressured.

MicroStrategy founder Michael Saylor has repeatedly stated that the company’s Bitcoin strategy is long-term and that it will never sell. This “diamond hands” approach is highly praised in bull markets, but under the triple pressures of potential index exclusion, rising financing costs, and vanishing premiums, its sustainability is severely challenged. If the company is forced to reduce holdings due to debt pressures, it could have a profound impact on the entire Bitcoin concept stock sector.

January 15, 2026, Will Be a Critical Turning Point

MicroStrategy was once viewed as a potential “Bitcoin exposure flagship” for the S&P 500, but now faces the risk of exclusion due to excessive reliance on digital asset holdings. MSCI’s decision on January 15, 2026, will mark the biggest turning point in the company’s five-year Bitcoin strategy.

The significance of this date extends beyond MicroStrategy’s index status; it will set a precedent for the entire Bitcoin concept stock sector. If MSCI confirms the delisting of MicroStrategy, any other publicly traded company adopting a similar Bitcoin holding strategy in the future will face the same risk, profoundly changing how enterprises incorporate Bitcoin into their strategies and operations.