MSCI Index Review May Impact Digital Asset Treasuries

By: Eva Baxter

The MSCI Index's consideration to exclude digital asset treasuries, such as those held by firms involved in cryptocurrency holdings, is stirring significant apprehension in the market. According to insiders, if MSCI decides on a removal by January, it could exert significant pressure on companies affected, particularly those that hold more than 50% of their assets in digital currencies like Bitcoin. This news is notably relevant to companies heavily integrated with cryptocurrencies, where their business models are profoundly intertwined with the performance of these digital assets.

Michael Saylor's company, known for its substantial investment in Bitcoin, finds itself at the center of this storm. Holding over 650,000 Bitcoin, Saylor's firm is the largest public holder of the cryptocurrency. The firm now faces the risk of removal from significant benchmark indices like MSCI USA and the Nasdaq 100. Analysts project that such a decision could lead to passive outflows between $2.8 billion and $8.8 billion, a substantial hit considering the current market exposure of about $9 billion.

The potential exclusion stems from the notion that digital asset treasury firms operate similarly to investment funds, which typically are not eligible for index incorporations. As Saylor's strategy involves cyclical mechanisms of stock trading to buy Bitcoin, any shifts in index regulations could impact liquidity and market perception significantly. The prospect of exclusion has led to a notable slump in the firm's market capitalization, aligning it more closely with its crypto reserves, reflecting a diminishing investor confidence.

Despite these challenges, the firm has maintained significant gains since its initial foray into Bitcoin in 2020. However, the decline in its share value has affected newer financial structures like perpetual preferred shares, complicating capital raising efforts. The ongoing debate and decision delay continue to exert a cloud of uncertainty over the future of digital asset treasuries in major indices, a narrative that remains crucial for stakeholders in both traditional and crypto markets.