TD Cowen analyst: MSCI’s potential exclusion actions are “capricious,” but investors should be prepared

TD Cowen analysts warn that MSCI will make an official decision in mid-January on whether to remove bitcoin treasury companies such as MicroStrategy from all its indices in February.

Written by: Micah Zimmerman

Translated by: AididiaoJP, Foresight News

TD Cowen analysts stated that MicroStrategy's stock may face continued pressure due to MSCI's upcoming review.

The company expects that bitcoin treasury companies like MicroStrategy will be removed from all MSCI indices in February this year. The official decision is expected to be made around mid-January.

Cowen described this potential removal as "capricious," but emphasized that investors should be prepared for ongoing selling pressure. Analysts pointed out that MicroStrategy is not a fund, trust, or holding company. Instead, it is a publicly listed operating company. Its $500 million software business contributes all of its revenue.

Meanwhile, its bitcoin treasury operations are innovative and highly active, providing unique bitcoin-backed securities.

Analysts wrote: "It feels arbitrary to remove MicroStrategy from broad indices simply because it focuses on bitcoin." Cowen questioned whether MSCI's rationale reflects a bias against crypto assets rather than being based on any rigorous classification standards. MSCI has expressed concerns that bitcoin treasury companies may be similar to investment funds, which are not eligible for index inclusion.

Cowen countered that MicroStrategy's structure is clearly different.

MicroStrategy Excluded by MSCI

This issue is significant. JPMorgan recently warned that excluding MicroStrategy from MSCI indices could trigger $2.8 billion in passive outflows. If other indices follow suit, the total outflow could reach $8.8 billion. MicroStrategy's current market capitalization is close to $5.9 billion, with about $900 million held by passive index-tracking tools.

JPMorgan believes that any forced selling could exacerbate the already weak stock price.

In recent months, MicroStrategy's stock has fallen more than bitcoin. The company's mNAV market cap to bitcoin holdings ratio has dropped to just above 1.1, the lowest level since the pandemic. Since last November, the stock has fallen by more than 60%. Its preferred stock and bond issuances have also suffered significant sell-offs.

Despite the volatility, Cowen has maintained a long-term bullish outlook. The bank estimates that by 2027, the company could hold 815,000 BTC. At that level, the per-share embedded bitcoin value could support a target price of $585, implying about 170% upside from current levels.

Cowen attributes the recent weakness to market volatility and index-related concerns, rather than a failure of MicroStrategy's core accumulation model.

MicroStrategy chairman Michael Saylor has dismissed concerns about the indices. In a recent statement, he emphasized that the company is a fully operational business with active software and bitcoin-backed credit programs. Saylor has repeatedly highlighted its innovative financial products, including structured bitcoin credit instruments such as $STRK and $STRC, which offer yields higher than traditional credit markets.

Saylor envisions accumulating $1 trillion in bitcoin and growing the company by 20-30% annually, leveraging long-term appreciation to create a massive digital collateral reserve.

On this basis, Saylor plans to issue bitcoin-backed credit with yields significantly higher than traditional fiat systems, potentially 2-4% higher than corporate or sovereign debt, providing a safer, over-collateralized alternative.

Saylor believes that other large traditional financial companies can use their income to emulate MicroStrategy's model.

Cowen also pointed out potential positives. Possible inclusion in the S&P 500 index or expanded institutional holdings could stabilize inflows to the stock. Further regulatory clarity around bitcoin could further boost investor confidence.

MicroStrategy's rise highlights the growing role of bitcoin in global finance. Its inclusion in indices such as the Nasdaq 100 and MSCI benchmark indices has historically brought crypto asset exposure into mainstream investment portfolios.

Cowen believes that if MSCI excludes the company, the market may see short-term turmoil, but the long-term adoption trend remains intact.

Bitcoin itself has also struggled over the past month, falling from a high of over $126,000 in October to around $88,000 recently. Even during this sell-off, MicroStrategy has continued to make large bitcoin purchases, now holding more than 3% of the total supply.

Bitcoin bulls need to keep the price above $84,000 after last week's close (UTC+8). If it falls below, weaker support is near $75,000, while stronger buying may emerge in the $72,000 to $69,000 range. Deeper downside targets point to the "58k" region, near the 0.618 Fibonacci retracement at $57,700.

MSTR rose more than 4% today, trading at $177.47 (UTC+8).