Strategy Keeps Nasdaq 100 Spot Amid 65% Stock Drop and MSCI Scrutiny
Michael Saylor's MicroStrategy has somehow managed to keep its place within the Nasdaq 100 despite all the fuss over its Bitcoin...
Quick overview
- MicroStrategy retains its position in the Nasdaq 100 despite its Bitcoin-centric business strategy.
- The company faces scrutiny from MSCI regarding its eligibility for global indexes due to its digital asset holdings.
- If excluded from the MSCI index, MicroStrategy could see around $1.5 billion in passive investment funds withdrawn.
- The MSCI decision may set a precedent for how companies involved with digital assets are classified in investment indexes.
Michael Saylor’s MicroStrategy has somehow managed to keep its place within the Nasdaq 100 despite all the fuss over its Bitcoin-obsessed business strategy. And this has come at a time when MSCI is preparing to rule on whether companies that hold large amounts of digital assets in their treasuries should still qualify for its global indexes.
Nasdaq 100 Retention Despite Business Model Shift
According to Reuters, MicroStrategy will remain in the Nasdaq 100 for now, retaining its spot after the index was revamped. This means the company will still be included for another year. It’s worth noting that just a short while ago, MicroStrategy was seen as a perfectly normal enterprise software company, but it all changed in 2020 when it decided to get really heavy on Bitcoin.
This change in fortunes has made the company’s stock move in lockstep with the price of Bitcoin – a rather unusual situation for a tech stock. Some people have started to wonder whether it actually belongs in the same tech-sector bucket as all the other Nasdaq 100 companies – a move that would have seen it get the boot. But that didn’t happen yet. Several other old familiar names did get the chop, but MicroStrategy somehow managed to hang on ahead of the December 22 cut-over date.
MSCI Review Could Leave A Big Hole
Now, though, the real test is coming from MSCI, which is deciding whether or not companies that hold onto a lot of digital assets should still qualify for its global indexes.
Key points that are up for debate include:
- If MicroStrategy gets kicked out, we’re talking about around $1.5 billion in cash flying out of passive investment funds in a pinch; that’s just a rough estimate.
- Companies with a connection to the price of Bitcoin could be in for a wild ride.
- This could also be the start of a bigger debate about how we classify companies in investment indexes when it comes to digital assets.
MicroStrategy is pushing back on the whole idea, saying that being excluded from the index would be a bad deal for its shareholders and would distort the rules governing index creation. The company’s stock has taken a battering – it’s down around 65% from its peak last year, and 36% so far this year – a sure sign that it’s super sensitive to all the ups and downs of the Bitcoin price.
Benchmark Decisions Will Set A Precedent
Industry players, like Bitwise, are saying that MSCI’s approach is a bit dodgy – that it runs the risk of making its perfectly good rules-based system a bit too subjective. They’re warning that the outcome could influence how all the other index-makers classify companies that use Bitcoin as a source of cash for their operations.
For now, at least, MicroStrategy gets to stay in the Nasdaq 100 and carry on as usual, but come January, we’ll be getting a much bigger say in how things go from here. The MSCI decision will have a big part to play in deciding whether or not other companies will be allowed to get involved with digital assets in the same way as MicroStrategy – and the outcome could well shape the way that traditional investors think about companies that are getting into the world of cryptocurrency.
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