MSCI Index Review May Pressure Crypto Treasury Firms

MSCI Review Threatens Crypto Treasury Firms

Companies holding significant crypto assets could face substantial challenges if MSCI decides to exclude them from its index in January. This review by MSCI is likely to impact firms where more than 50% of their balance sheet comprises digital assets, including Bitcoin.

According to Charlie Sherry, Head of Finance at BTC Markets, the likelihood of exclusion is high as MSCI typically consults on changes it already leans towards. This consultation period, closing on December 31, will lead to decisions publicized by January 15, with changes effective in February.

Potential Impact on the Market

If MSCI excludes these digital asset treasury companies (DATs), funds tracking the index will need to divest, creating downward pressure on affected stocks. A preliminary list includes 38 firms such as Michael Saylor's Strategy, Sharplink Gaming, and crypto miners Riot Platforms and Marathon Digital Holdings.

"When most of the value comes from balance-sheet assets, MSCI considers it outside the scope of traditional equity benchmarks," Sherry stated. This move reflects a shift from previously applauded crypto-heavy strategies to more conservative definitions.

JPMorgan analysts warned Strategy could lose $2.8 billion if MSCI proceeds, with $9 billion of its market value in passive funds tracked by indexes.

Will Other Indexes Follow?

It's uncertain whether MSCI's decision will influence other index providers. While index providers often observe each other, they have unique methodologies and client bases.

Sherry remarked, "If MSCI changes its rules, others might reconsider their own, but a chain reaction isn't guaranteed." Despite potential exclusion from MSCI, Strategy is still seen as a possible addition to the S&P 500 by year-end.

Benefits of Clearer Rules

Sherry noted that clear corporate classification rules benefit the crypto sector by reducing uncertainty for issuers and investors. "Well-defined frameworks strengthen long-term institutional confidence, even if short-term impacts are challenging for Bitcoin-centric stocks," he added.