How A 50% Price Jump Could Spell Major Troubles

Strategy, formerly known as MicroStrategy, the largest public holder of Bitcoin (BTC), finds itself at the center of a stormy controversy involving JPMorgan as Bitcoin prices continue to struggle. 

With signs of a potential bear market emerging, fresh rumors suggest that one of the world’s largest banks allegedly holds a significant short position on Strategy’s stock (MSTR), which has plunged 69% from its record high of $543 per share last year.

Strategy Faces Potential MSCI Exclusion

The turmoil escalated last week when JPMorgan issued a warning that Strategy might soon be removed from major equity indices, specifically the MSCI USA Index. 

JPMorgan’s analysts noted that the issues facing Strategy extend beyond the recent downturn in cryptocurrency prices, which have seen Bitcoin fall more than 30% from its all-time highs. 

As of this writing, Bitcoin is trading around $86,000, while the broader crypto market has experienced a staggering $1 trillion decline in total market capitalization over the past month.

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JPMorgan’s analysts indicated that MSCI is considering whether companies with over 50% of their total assets in digital currencies should qualify for inclusion in traditional equity indices. Given that Strategy’s balance sheet is heavily weighted with Bitcoin, it is at significant risk of exclusion. 

The analysts stated that “MicroStrategy [is] at risk of exclusion from major equity indices as the January 15th MSCI decision approaches.” They speculated that removal from the MSCI could trigger approximately $2.8 billion in outflows, and if other index providers follow MSCI’s lead, the total could reach as high as $8.8 billion.

The situation is complicated by market dynamics, particularly the timing of JPMorgan’s bearish note, which coincided with Bitcoin’s weakness and MSTR’s decline, all while liquidity was thin and overall sentiment fragile. 

JPMorgan Faces Account Closures Surge

According to analysts at the Bull Theory, JPMorgan has been noted for timing its market reports—bearing down when prices are already weak and striking a more bullish tone near market peaks. 

The analysts have highlighted that share lending for MSTR has reportedly increased, allowing brokers to lend shares to short sellers, which can exacerbate downward pressure on the stock price. 

Additionally, there are escalating reports of widespread account closures at JPMorgan, with thousands claiming to have exited due to perceived manipulation of both MSTR and Bitcoin. 

Amid these developments, the fear of a potential short squeeze is growing. The analysts believe that if Strategy’s stock were to rally around 40% to 50%, it could trigger a short squeeze in the bank’s position and spell major financial troubles. 

In response, Michael Saylor, the CEO of Strategy, has sought to clarify the company’s identity, emphasizing that it is not just a passive Bitcoin holder. He pointed out that Strategy operates as a software business with an active financial strategy, countering the narrative circulating around MSCI’s concerns.

As the situation unfolds, several key points emerge. The October 10th crash appeared to align with the MSCI announcement, coinciding with an already fragile market state. JP Morgan’s strategic timing of its bearish insights has amplified existing fears, creating further uncertainty as MSCI’s final decision looms.

Featured image from DALL-E, chart from TradingView.com