The MSCI delisting saga has triggered short-selling alarms, with Strategy becoming a "pressure valve" for the crypto market.
Author: Nancy, PANews Last week, Bitcoin experienced another sharp drop, leaving Strategy (MicroStrategy) deeply mired in uncertainty. Besides facing questions about the DAT flywheel's potential stall, news of its possible delisting from MSCI triggered short-selling alarms, and a JPMorgan research report further exacerbated market anxiety. With the changing crypto market environment, Strategy not only faces new challenges to its business model, but its role is also gradually shifting from simply providing Bitcoin exposure to becoming a tactical tool. 38 crypto companies are being monitored by MSCI; Strategy responds that the market has already priced it in. Last Friday, market sentiment fell into the "extreme fear" zone as Bitcoin's key support level was breached. During this sensitive period, a major adjustment proposal from MSCI, a globally renowned index provider, hit the market like a bomb, further pressuring Strategy's stock price. MSCI has long been regarded as a bellwether for international capital markets. As the core index compiler of Morgan Stanley Capital International, its indices cover global listed companies' data, including market capitalization, liquidity, and trading volume, with a total asset value exceeding $15 trillion. More than 1,400 ETFs worldwide are linked to MSCI indices. This means that being included in an MSCI index is equivalent to gaining access to large international funds, attracting significant international capital attention and allocation. However, MSCI typically conducts four routine adjustments to its indices annually: quarterly reviews in February and August, and semi-annual reviews in May and November. Therefore, delisting from the MSCI index not only affects trading volume but also impacts institutional investors' investment decisions and market confidence. In October of this year, MSCI announced an extension of the consultation period regarding the inclusion of digital asset reserve companies in its indices. According to the initial proposal, companies whose balance sheets contain 50% or more of cryptocurrencies (such as Bitcoin) may be excluded from the MSCI World Investable Markets Index. MSCI believes that such companies are more like investment funds than traditional operating businesses and therefore do not meet the criteria for equity indices. At the same time, MSCI is also seeking market feedback to discuss whether other criteria should be added besides asset percentage, such as whether the company identifies itself as a crypto reserve company or primarily accumulates crypto assets through fundraising. Official documents show that 38 crypto mining companies and digital asset treasury companies, including Strategy, MARA Holdings, SharpLink Gaming, BitMine, MetaPlanet, Hut 8, Riot Platforms, and Marathon Digital Holdings, have been included in the preliminary review list. This consultation on adjustments will continue until December 31, 2025, with the final conclusion expected to be announced on January 15, 2026. Any index changes may be formally implemented during the index review in February 2026. In response, Strategy founder Michael Saylor stated in an interview with Coindesk that this was "a bit alarmist," emphasizing that the market had already priced it in, and the actual impact of the outflow would be smaller. He added that MSCI's decisions are not directly related to those allocating to indices like Nasdaq and S&P 500, and that the value of digital assets is gaining widespread recognition in the financial, accounting, and political spheres. Digital assets have become an indispensable part of the mainstream financial system, and the market is gradually accepting them. The Difficult Choice for Microstrategies: Selling Bitcoin or Losing Index Eligibility For Strategy, the potential MSCI adjustment means two options: First, reduce its Bitcoin holdings to below 50% to retain its index eligibility. Strategy holds nearly 650,000 Bitcoins, meaning that reducing its holdings would inevitably create massive selling pressure on the market. This could not only exacerbate the decline in Bitcoin prices but also trigger panic selling of other crypto asset treasury companies, creating a chain reaction. For Strategy itself, short-term reductions could preserve passive index fund inflows, but could simultaneously weaken market confidence in its core business model—capital appreciation through long-term Bitcoin holdings. Secondly, the company will maintain its existing crypto asset allocation to sustain its yield strategy. Strategy's operating model relies on large-scale Bitcoin holdings to maintain company operations and shareholder returns through capital appreciation and financing activities. If it abandons its plan to reduce its holdings, the company will lose MSCI index support, meaning investors may withdraw their funds. Capital outflows and downward pressure on the stock price could further erode market confidence, creating a negative cycle. However, Saylor also emphasized that Strategy is not a fund, trust, or holding company, but a publicly traded operating company with a $500 million software business, executing a unique treasury strategy that uses Bitcoin as productive capital. This year, it has completed five public offerings of digital credit securities (STRK, STRF, STRD, STRC, and STRE), with a total notional value exceeding $7.7 billion, and launched Stretch (STRC), a revolutionary Bitcoin-backed treasury credit instrument offering variable monthly dollar returns to institutional and retail investors. Unlike passively holding assets funds and trusts, Strategy is the entity that creates, structures, issues, and operates. The team is building a completely new business model—a Bitcoin-backed structured finance company capable of continuous innovation in capital markets and software. No passive investment vehicle or holding company can do what Strategy is doing. “Index classifications cannot define us. Strategy’s strategy is long-term, our belief in Bitcoin is unwavering, and our mission remains to be the world’s first cryptocurrency institution based on sound money and financial innovation,” Saylor stated. Furthermore, Strategy posted on social media that during the 2022 crypto bear market, its average Bitcoin purchase cost was approximately $30,000, with BTC briefly dipping to around $16,000, at which point the company chose to buy more Bitcoin. This may suggest that they will continue to increase their BTC holdings during this bear market. JPMorgan Chase research report exacerbated market panic, while short-selling sentiment eased somewhat. MSCI's proposal initially did not receive widespread attention from the retail market. It wasn't until JPMorgan Chase recently released a research report on the possibility of Strategy being removed from the MSCI index that many retail investors realized they were "behind the times," which became the trigger for further market panic. On November 20th, JPMorgan Chase released a report stating that if Strategy is removed from MSCI's stock indices, it could result in an outflow of approximately $2.8 billion; if other indices follow suit, the total outflow could reach $11.6 billion. The analyst emphasized that the inclusion of Bitcoin in these indices has indirectly permeated the portfolios of retail and institutional investors. However, with MSCI now considering removing Strategy and other companies with predominantly digital asset holdings from its stock indices, this previous indirect penetration could be reversed. It is worth noting that JPMorgan Chase's research report has sparked a lot of speculation in the market, with many believing that its release of the report a month after the announcement was a malicious short-selling tactic, and it has also triggered a wave of boycotts in overseas communities. Some crypto users believe this was a carefully orchestrated short-selling attack. For example, @_Adrian pointed out that, chronologically, short sellers and large institutions manipulated market sentiment starting in May; in July, JPMorgan Chase significantly increased the margin requirement for $MSTR, creating pressure for forced liquidation; then in September, MSCI suspended processing Metaplanet's public offering after its capital increase; in October, MSCI extended its consultation announcement, cleverly coinciding with the announcement of Trump's tariffs, triggering market panic; and in November, JPMorgan Chase used an old announcement to hype up the risk of delisting. This attack on MSTR and DAT was premeditated and packaged as a "regulatory action." As the controversy continues to escalate, Bitcoin analyst The Bitcoin Therapist points out that a large number of users have begun closing their JPMorgan Chase accounts. For example, Bitcoin advocate Grant Cardon claims to have withdrawn $20 million from the bank and plans to sue its credit card division for misconduct. Bitcoin advocate Max Keiser bluntly stated, "Beat JPMorgan Chase, buy Strategy and Bitcoin." Market data shows that JPMorgan Chase itself has reduced its spot and put positions in MSTR. According to JPMorgan Chase's 13F filing, it reduced its MSTR stock holdings to varying degrees in both the second and third quarters of this year. As of Q3, however, the value of its remaining MSTR positions exceeded $760 million. Simultaneously, the filing shows that it held approximately $832 million in MSTR-related put option exposure over the past two quarters, with the number of shares corresponding to these options decreasing by approximately 79.5% compared to the previous quarter, leaving 363,000 contracts. In other words, although JPMorgan Chase still holds a certain amount of put options, its overall exposure has significantly decreased. Compared to dozens of institutions such as SIG, Citadel, IMC Chicago, Jane Street, and Simplex, JPMorgan Chase's put holdings are not the largest. In addition, Fintel data shows that the current MSTR open interest put/call ratio is 0.74. Generally, a ratio greater than 1 usually indicates a bearish market sentiment, while a ratio less than 1 indicates a bullish market sentiment. Cryptocurrency becomes the preferred hedge after being reduced by multiple Wall Street institutions. MSTR was once a key tool for Wall Street investors to gain exposure to Bitcoin. With its unique capital structure and leveraged holding strategy, MSTR was considered a shortcut to acquiring high-risk, high-return exposure to Bitcoin. Especially during periods of rising Bitcoin prices, this high-volatility, high-leverage structure amplified returns, making investors willing to pay an extra premium for potential excess returns. However, with changes in the market environment, MSTR's role has shifted significantly. First, Bitcoin spot ETFs and custody solutions offer more direct and transparent investment tools, allowing investors to bypass MSTR and gain direct exposure to Bitcoin. These products not only simplify the investment process but also reduce structural and leverage risks, providing investors with lower-cost and simpler options. Second, increased competition from similar Bitcoin ETF (DAT) companies has created more alternative investment opportunities. Simultaneously, the premium advantage of MSTR has diminished, meaning that investors are paying additional costs for leverage and structural risks, while potential returns may not increase proportionally. In fact, institutional investors significantly reduced their holdings of MSTR stock as early as the third quarter of this year. According to CryptoSlate, institutional investors sold off positions worth approximately $5.38 billion in the third quarter, reducing their holdings from $36.32 billion to $30.94 billion, a decrease of 14.8%. Institutions involved included Capital International, Vanguard, BlackRock, and Fidelity, with each institution reducing its holdings by more than $1 billion. This sell-off was not due to forced liquidation caused by a market crash. Bitcoin remained relatively stable during the quarter, and MSTR's stock price traded sideways, indicating that MSTR is shifting from a necessity to an optional asset in the eyes of investors, but it still maintains an institutional market exposure of over $30 billion. More notably, MSTR's high volatility and leverage have attracted the attention of Wall Street hedge funds and arbitrage traders. Institutional investors are using its price volatility and capital structure differences for arbitrage trading, making MSTR no longer the only option for long-term holders, but a tool for strategic hedging and leveraged operations. For example, Tom Lee, Chairman and CEO of BitMine, recently pointed out in an interview with CNBC that Strategy has become the preferred tool for crypto investors to manage risk, which partly explains the main reason for its sharp drop in stock price over the past month. After the market crash in October, native hedging tools such as Bitcoin and Ethereum derivatives lacked liquidity for large sums of money, making it impossible for large investors to directly hedge risks in the crypto market. Holding nearly 650,000 Bitcoins, Strategy is perhaps the most important target to watch right now, as it is both a Bitcoin proxy stock and the most liquid alternative asset, with investors turning to MSTR's highly liquid options chain for hedging. In his view, MSTR is one of the hardest hit targets in the current downturn, partly because it acts as a "pressure valve" in the market, absorbing all the hedging pressure generated by the entire crypto industry to protect long positions. In fact, the underlying structure of the crypto market remains fragile since the 10/11 attacks, and the phenomenon of Strategies becoming a hedging tool reveals deeper structural problems. Crypto KOL @Rui also stated that in early October, institutions realized that MSTR might be removed from the index and sold off their holdings in advance to protect themselves, causing MSTR's stock price to fall from $310 to $170, a drop of nearly half. During this process, DCA (dollar-cost averaging) selling and short-selling activities resonated, accelerating the panic sell-off. After JP Morgan released related news on November 20, a panic sell-off and large-scale short covering occurred before the US stock market opened, marking the temporary end of this round of MSTR speculation. He believes that the market focus will likely shift to the next wave of institutional actions before the end of the year, and investors need to pay attention to whether the stock price stabilizes and whether there are large-scale sell-offs to determine a short-term bottom.
