Bitwise Chief Investment Officer: Don't Worry, MicroStrategy Will Not Sell Bitcoin

Original Article Title: No, Virginia, Strategy Is Not Going To Sell Its Bitcoin

Original Article Author: Matt Hougan, Chief Investment Officer at Bitwise
Original Article Translation: Luffy, Foresight News

Lately, my inbox has been flooded with inquiries about MicroStrategy, the Bitcoin-reserve company. Specifically, the main concerns are:

1. Will MicroStrategy be removed from the MSCI index, leading to a forced sell-off of its stock?

2. Will MicroStrategy be forced to sell its held Bitcoin?

Let's analyze these questions one by one.

Association Between MSCI Index and MicroStrategy

On October 10, MSCI announced that it is considering removing companies like MicroStrategy, which are crypto asset treasury reserve companies (DAT), from its investable indices. This is significant as around $17 trillion in assets are benchmarked to these indices. JPMorgan estimated that if MicroStrategy is removed from the index, index funds may be forced to sell up to $2.8 billion worth of MSTR stock.

You might wonder why MSCI is taking this action. Their view is that companies like MicroStrategy, which are crypto asset treasury reserve companies, lean more towards holding companies rather than operating companies. MSCI's investable indices already exclude holding companies like real estate investment trusts, and since most crypto asset treasury reserve companies' businesses solely involve purchasing and holding crypto assets, MSCI believes they should not be included in the index. Following discussions with clients, MSCI will announce its final decision on January 15.

I cannot predict MSCI's final ruling. As a seasoned researcher in the index field, having served as the editor of the academic journal "Index Journal" for a decade, I see two possibilities. Michael Saylor and others have strongly argued that MicroStrategy is a bona fide operating company, not only with a robust software business but also engaged in complex financial engineering around Bitcoin. This argument makes sense, and I personally agree with its business characteristics. However, nothing is set in stone, and I can also envision some institutions holding the opposite view. Given the controversy surrounding crypto asset treasury reserve companies and MSCI's current intention to exclude them, I estimate the probability of MicroStrategy being removed from the index to be at least 75%.

However, I do not believe that being removed from the index will have a significant impact on its stock. The $2.8 billion sell-off scale may seem substantial, but based on my years of observing index inclusion and exclusion events, the actual impact is often smaller than expected and will be digested by the market in advance. For example, when MicroStrategy was added to the Nasdaq 100 index in December last year, funds tracking that index needed to buy $2.1 billion worth of MSTR stock, yet the stock price hardly fluctuated.

I believe the slight decline in MSTR's stock price since October 10th is partly due to the market already pricing in the expectation of being "removed from the index." However, at this stage, its stock price is unlikely to experience significant volatility.

In the long term, MSTR's value depends on its strategic execution rather than whether index funds are forced to hold its stock.

MicroStrategy's Bitcoin Holdings

Another question is whether MicroStrategy will sell off Bitcoin. The logic of the bears' concern is as follows:

· MicroStrategy is removed from the MSCI index;

· Its stock price crashes, falling well below Net Asset Value (NAV);

· Eventually forced to sell off Bitcoin.

This logic may seem plausible, but unfortunately, it does not hold water at all. If MSTR's stock price falls below Net Asset Value, it will not trigger the sale of its Bitcoin. You can refer to the relevant regulations and calculate it yourself.

MicroStrategy's debt only has two key performance obligations: one is to pay approximately $800 million in annual interest, and the other is to complete conversion or extension when some debt instruments mature.

There is no need to worry about interest payments in the short term. The company currently holds $1.4 billion in cash, enough to easily cover a year and a half of interest.

Similarly, debt conversion is not a near-term issue. The first batch of debt instruments will not mature until February 2027, and the scale is only about $1 billion, which is a drop in the ocean for MicroStrategy, which holds $600 billion in Bitcoin.

If MSTR's stock price continues to decline, will insiders pressure the company to sell off Bitcoin? The likelihood is extremely low. Michael Saylor himself controls 42% of the voting power, making it hard to find anyone more committed to the long-term value of Bitcoin than him. When MSTR's stock price was discounted in 2022, he did not sell off Bitcoin.

I understand why short sellers are keen on hyping the doomsday narrative of MicroStrategy. If MicroStrategy is forced to sell off $60 billion in Bitcoin in one go, the impact on the entire Bitcoin market would be devastating, equivalent to two years' worth of inflows into a Bitcoin ETF. But considering the company has no debt maturing before 2027 and the cash is sufficient to cover foreseeable interest payments, this extreme scenario is impossible. We should also look at the current situation from a more macro perspective: at the time of writing this article, the price of Bitcoin is around $92,000, down 27% from its all-time high, but still 24% higher than MicroStrategy's average Bitcoin holding cost ($74,436). The so-called "doomsday" is nothing but baseless talk.

Conclusion

If you are truly concerned about something in the cryptocurrency industry, there are actually several points worth paying attention to. For example, I am slightly worried about the progress of the market structure bill at the congressional level, but as government agencies resume normal operations, I believe the bill's advancement will accelerate; I am also concerned that some small-scale, poorly operated crypto asset custody companies may go out of business; at the same time, I anticipate that crypto asset custody companies will not significantly increase their Bitcoin holdings in 2026, which means the market will lose an important source of recent demand.

But regarding MicroStrategy:

· There is no need to worry about MSCI's decision affecting MicroStrategy's stock price, as the actual impact is far less than most people expected, and it has most likely already been absorbed by the market;

· There is currently no reasonable mechanism that would force it to sell Bitcoin in the short term, so this scenario will not occur.

A steadfast belief in Bitcoin comes at a cost: when the market experiences volatility, it is important to remain calm and patient. No one understands this better than Saylor and MicroStrategy, as they also recognize the flip side of this patience. In the long run, this commitment will ultimately yield substantial returns.

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