Could Strategy Be Forced To Sell Its Bitcoin? Bitwise CIO Says No

The recent concerns surrounding Strategy, a bitcoin treasury company, have sparked a heated debate in the crypto community. Bitwise Chief Investment Officer Matt Hougan has weighed in on the issue, arguing that the likelihood of Strategy being forced to sell its $60 billion bitcoin stack is low. In his latest CIO memo, Hougan writes that the notion of Michael Saylor and Strategy selling bitcoin is not a real risk in the crypto market.

Will Strategy Sell Its Bitcoin?

The immediate trigger for market anxiety is MSCI’s consultation on whether to remove digital asset treasury companies (DATs) like Strategy from its investable indexes. With nearly $17 trillion in assets tracking these benchmarks, JPMorgan estimates that index funds might have to sell up to $2.8 billion of MSTR if it is excluded. This has led to concerns that Strategy may be forced to liquidate its bitcoin holdings to meet its financial obligations.

However, Hougan, a self-described “deep index geek,” believes that this is unlikely. He notes that Michael Saylor and others argue that Strategy remains an operating software company with complex financial engineering around bitcoin, which is a reasonable characterization. Despite this, Hougan acknowledges that DATs are divisive, and MSCI is currently leaning toward excluding them, with a 75% chance of Strategy being removed from the index when MSCI announces its decision on January 15.

Index Mechanics and Equity Volatility

Hougan argues that even if Strategy is removed from the index, it is unlikely to be catastrophic for the stock. Large, mechanical index flows are often anticipated and “priced in well ahead of time.” He points out that when MSTR was added to the Nasdaq-100 last December, funds tracking the index had to buy about $2.1 billion of stock, yet “its price barely moved.” Hougan believes that some of the downside in MSTR since October 10 already reflects investors discounting a probable MSCI removal, and that “at this point, I don’t think you’ll see substantial swings either way.”

Over the long term, Hougan insists that the value of MSTR is based on how well it executes its strategy, not on whether index funds are forced to own it. He also notes that the company’s balance sheet constraints, including interest payments and debt maturities, do not pose a significant risk to its bitcoin holdings.

Smaller DATs Are The Bigger Problem

Hougan breaks down the problem to actual balance sheet constraints, noting that Strategy has two key obligations: about $800 million per year in interest payments and the need to refinance or redeem specific debt instruments as they mature. With approximately $1.4 billion in cash, the company can easily make its dividend payments for a year and a half without touching its bitcoin or needing heroic capital markets access.

The first major maturity does not arrive until February 2027, and that tranche is “only about $1 billion—chump change” compared with the roughly $60 billion in bitcoin the company holds. Governance further reduces the likelihood of forced selling, as Michael Saylor controls around 42% of Strategy’s voting shares and has extraordinary conviction on bitcoin’s long-term value.

Governance and Conviction

Hougan concedes that a forced liquidation would be structurally significant for bitcoin, roughly equivalent to two years of spot ETF inflows dumped back into the market. However, he does not see a credible path from MSCI index mechanics and equity volatility to that outcome, given the company’s cash reserves and debt maturity schedule. At the time of writing, bitcoin trades around $92,000, about 27% below its highs but still 24% above Strategy’s average acquisition price of $74,436 per coin.

Hougan ends by stressing that there are real issues to worry about in crypto, such as slow-moving market structure legislation and fragile and poorly run bitcoin treasury companies. However, the notion of Strategy being forced to sell its bitcoin is not one of them.

In conclusion, while there are concerns surrounding Strategy’s potential removal from the MSCI index, the likelihood of the company being forced to sell its bitcoin is low. With a strong balance sheet, governance, and conviction from Michael Saylor, Strategy is well-positioned to weather any potential storms in the crypto market.

Frequently Asked Questions

Here are some common questions and answers related to Strategy and its bitcoin holdings:

• Q: Will Strategy be removed from the MSCI index? A: There is a 75% chance that Strategy will be removed from the MSCI index, according to Bitwise CIO Matt Hougan.
• Q: What would happen to Strategy’s stock if it is removed from the index? A: The stock price may experience some volatility, but it is unlikely to be catastrophic, as large index flows are often anticipated and priced in well ahead of time.
• Q: Could Strategy be forced to sell its bitcoin? A: No, according to Hougan, there is no credible path from MSCI index mechanics and equity volatility to a forced liquidation of Strategy’s bitcoin holdings.
• Q: What are the real issues to worry about in crypto? A: Slow-moving market structure legislation, fragile and poorly run bitcoin treasury companies, and other factors that could impact the long-term value of bitcoin and the crypto market.

By understanding the facts and context surrounding Strategy and its bitcoin holdings, investors can make more informed decisions and avoid unnecessary anxiety about the potential risks and consequences of a forced liquidation.