TL;DR:
- Anthony Scaramucci, a former Trump ally, recently praised MicroStrategy co-founder Michael Saylor.
- MicroStrategy (MSTR) faces a high correlation with the Bitcoin price correction, which dropped from $126,000 to $82,000.
- MSCI is reviewing MSTR’s eligibility for its indices, arguing that its business model resembles that of a cryptocurrency investment fund.
Michael Saylor and his company received significant political backing amid a context of extreme uncertainty for both. Anthony Scaramucci, the former White House Communications Director under the Trump administration, recently praised the executive for his moves in the Bitcoin market.
The support comes as MicroStrategy, which maintains a close and often volatile correlation with the pioneer crypto, faces dual challenges: a significant correction in the price of Bitcoin and a crucial regulatory review.
MSTR’s fortune dances dramatically to Bitcoin’s rhythm. After reaching a peak of $126,000 in early October, the cryptocurrency underwent a sharp correction, falling to around $82,000 by late November. This drop highlighted the company’s direct dependence, underscoring the high-risk nature of Saylor’s strategy of using corporate treasury to accumulate BTC.
The Regulatory Labyrinth: MSCI’s Review Puts MSTR’s Business Model to the Test
The regulatory environment poses the most imminent challenge for Saylor and MicroStrategy. In this regard, JPMorgan had previously warned about the possibility of the company being removed from major equity indices. This warning materialized on December 2 when MSCI, the global index provider, confirmed that it is reviewing MSTR’s eligibility for several of its key indices, including the influential MSCI USA Index.
MSCI’s main concern is that MSTR’s business model, focused on buying and holding cryptocurrencies, makes it look more like an investment fund than a traditional operating company. A potential rule under review could specifically exclude companies “whose business model is to buy cryptocurrencies.”
An exclusion would carry significant implications, as major equity indices, such as MSCI’s, are followed by large investment funds, and MSTR’s removal would force these funds to sell their holdings in the company, exerting strong downward pressure on its stock price.
In summary, Saylor acknowledges the situation, stating that the company is in “active discussions” with MSCI regarding the review. The outcome of these conversations will determine whether the entrepreneur’s vision of transforming a software company into a corporate Bitcoin whale can coexist with the investment norms of traditional stock markets.
