Concerns regarding the potential exclusion of Strategy (MSTR) from the MSCI index surfaced last week, with analysts from JPMorgan estimating that such a move could induce outflows ranging between $2 billion and $8 billion.
Amid this unease within the crypto community, Michael Saylor, co-founder of Strategy, confirmed that the company is actively engaging in discussions with MSCI relating to its potential removal from the provider’s indices.
Michael Saylor Weighs In On Exclusion Concerns
MSCI is set to make its decision by January 15 on whether to exclude companies whose business models focus predominantly on cryptocurrency purchases. This decision stems from concerns that these firms mimic investment funds, rendering them ineligible for inclusion in the index.
Reports have surfaced indicating that Saylor has expressed skepticism regarding JPMorgan’s predictions. He stated, “It won’t make any difference, in my opinion,” with regard to the implications of a potential exclusion from the MSCI index.
Furthermore, Saylor acknowledged the inherent volatility of Strategy’s equity, which is heavily influenced by fluctuations in Bitcoin’s (BTC) price. He cautioned, “If Bitcoin falls 30% or 40%, then the equity is going to fall more, because the equity is built to fall.”
Presently, Strategy operates with a leverage ratio of 1.11, and Saylor affirmed that the company could endure a drastic decline of up to 95% in Bitcoin prices.
In a statement addressing concerns from MSCI, Saylor emphasized that Strategy is not just a passive entity holding Bitcoin, but rather, it functions as a dynamic software firm with a proactive financial strategy.
Strategy Establishes New USD Reserve
The recent volatility in Bitcoin prices has reignited fears of a potential bear market, prompting speculation about whether Strategy would consider liquidating a portion of its significant Bitcoin reserves, which currently exceed 650,000 coins.
This speculation was fueled by comments from Strategy CEO Phong Le, who, during an episode of the “What Bitcoin Did” podcast, addressed the possibility of selling holdings. He relayed that if their stock were to trade below the intrinsic value of their Bitcoin holdings and they were unable to secure additional capital for preferred dividends, a sale might become necessary.
“If the stock trades below the value of our Bitcoin, then mathematically we would have to sell some Bitcoin. It would be the last resort,” Le explained.
To proactively navigate potential market challenges, the Virginia-based company announced the establishment of a $1.44 billion reserve fund dedicated to covering dividend payments on preferred stock and fulfilling debt obligations.
The newly created reserve is funded through proceeds from its at-the-market stock offering. The company aims to maintain a balance that will suffice for at least 12 months of dividends while striving to extend this coverage to 24 months in the future.
Saylor articulated, “Establishing a USD Reserve to complement our BTC Reserve marks the next step in our evolution. We believe it will better position us to navigate short-term market volatility while delivering on our vision of being the world’s leading issuer of Digital Credit.”
At the time of writing, Bitcoin was trading just above $93,000, registering a 4.5% increase within the last 24 hours. Meanwhile, MSTR saw an uptick of 2% in premarket trading.
