Global index provider MSCI has announced it will maintain its current index treatment for so-called "crypto asset treasury companies," a move that means firms like MicroStrategy, which hold Bitcoin as a core asset, have temporarily avoided being removed from its indices. On Tuesday, MSCI stated in a declaration that it would uphold the existing index treatment for companies, including those whose cryptocurrency holdings exceed 50% of total assets, meaning it will temporarily not remove treasury companies from its indices. MSCI pointed out that Digital Asset Treasury Companies (DATCOs) exhibit characteristics of investment funds, as their business activities are primarily investment-oriented rather than operationally focused. As an alternative, MSCI revealed plans to initiate a broader consultation to explore how non-operating companies should be treated. MicroStrategy currently holds over $60 billion in Bitcoin, accounting for approximately 99% of its enterprise value. Boosted by this news, MicroStrategy's stock price rose over 6% in after-hours trading, following a year in which the stock had already declined nearly 60%.
Although MSCI has shelved this controversial plan, which could have led to crypto asset-intensive companies being removed from major benchmark indices, it does not mean the regulatory door is permanently closed. Christopher Harvey, Head of Equity and Portfolio Strategy at CIBC Capital Markets, commented:
They are staying for now, but MSCI hasn't closed the door.
Previously, analysts at JPMorgan had warned that if MSCI proceeded with the removal plan, up to $2.8 billion could flow out of MicroStrategy, and if other index providers followed suit, the scale of outflows would further expand. Broader Consultation and Definition Challenges MSCI explained in its statement that distinguishing between companies that hold non-operating assets (like cryptocurrency) for core operational purposes versus merely for investment purposes requires further study and consultation with market participants. Previously, MSCI's proposal to ban companies purchasing cryptocurrency from entering its US indices had sparked strong opposition from several companies, including MicroStrategy. As one of the earliest and largest crypto asset treasury companies, MicroStrategy, in a 12-page letter signed by Executive Chairman Michael Saylor last December, criticized the plan as "misguided" and "harmful." Saylor argued that the 50% threshold "arbitrarily singles out digital asset enterprises for uniquely unfavorable treatment," pointing out that companies with exposures to assets like oil, timber, or gold do not face similar scrutiny. He also stated that the proposed restrictions failed to consider price volatility and core balance sheet accounting considerations. Strive, another Bitcoin treasury company co-founded by Vivek Ramaswamy, had also raised objections. Its Chairman and CEO, Matt Cole, called Tuesday's decision a "huge victory" on social media platform X, despite previously facing "long odds." The Transition from Software Company to Bitcoin Holder MicroStrategy was originally an ordinary software company until 2020, when Saylor shifted the company's cash into Bitcoin, citing inflation's erosion of cash value. Initially viewed by most market observers as a novelty, MicroStrategy quickly became a favorite among speculative investors seeking a convenient channel to invest in Bitcoin. This strategic shift once caused MicroStrategy's stock price to skyrocket, surging over 3500% at its peak following the transition, outperforming major stock indices. However, with volatility in the cryptocurrency market, most treasury concept stocks have fallen sharply over the past year, with many companies' market capitalizations even dropping below the value of the digital tokens they hold. While MSCI's decision has bought MicroStrategy some time, the debate over the positioning of crypto asset treasury companies within traditional financial indices is far from over.
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