Strategy Calls For Withdrawal Of MSCI’s Exclusion Plan For Digital Asset Treasury Companies

Strategy, formerly known as MicroStrategy, has expressed strong opposition to a proposal by the Morgan Stanley Capital International (MSCI) to exclude digital asset treasury companies (DATs) from its indexes. 

In a recent letter signed by Michael Saylor and the firm’s CEO Phong Le, Strategy highlighted its support for MSCI’s efforts to establish consistent eligibility criteria across its indices. 

However, the company criticized the proposed threshold for excluding firms with more than 50% digital assets on their balance sheets, calling it “misguided.” The company argued that this measure could have negative implications not only for Strategy’s operations but also for the broader cryptocurrency market.

Strategy emphasized that, unlike traditional investment funds, it maintains the operational agility to adapt its value-creation strategies in tune with the evolving technology underlying Bitcoin. 

The firm asserts that this flexibility is a critical asset for investors and distinguishes Strategy and other DATs from traditional digital asset investment vehicles. 

The firm likened its investment approach in a singular asset class to that of real estate investment trusts (REITs) or oil companies, stating that MSCI categorizes those entities correctly without labeling them as investment funds. Therefore, it argued, DATs should be afforded similar treatment.

The letter criticized the proposed 50% digital asset threshold as “discriminatory and arbitrary,” suggesting that it imposes uniquely unfavorable conditions on digital asset companies while allowing other industries—like oil, timber, and real estate—to maintain concentrated asset holdings without similar scrutiny. 

Strategy raised concerns that enforcing this rule would necessitate MSCI to create new methods for measuring balance sheet concentration, complicating the indexing process unnecessarily due to varying accounting principles across asset classes and jurisdictions.

Additionally, Strategy elaborated on how the exclusion of DATs could substantially inhibit innovation within the digital asset industry, which the current administration strongly promotes as part of its economic strategy. 

The company said that digital assets like Bitcoin have the potential to become foundational elements of global financial systems, but the proposed measures could limit access to these transformative technologies for pension plans and 401(k)s, ultimately redirecting billions away from the sector.

Strategy cautioned that a hasty exclusion of DATs could be based on misconceptions about their business models, asserting that it reflects a misunderstanding of the nature of these entities. 

The firm advocated for a more measured approach similar to MSCI’s past handling of the “Communication Services” sector, which underwent extensive consultation and a thorough review before reorganizing traditional telecom, media, and internet companies.

If implemented, Strategy warns that MSCI’s proposal could lead to the delisting of numerous companies heavily involved in digital assets. JPMorgan analysts estimate that Strategy alone might face liquidations of up to $2.8 billion as a direct consequence of this exclusion.

Such a move is also expected to potentially distort market dynamics by incentivizing Bitcoin miners to sell their assets immediately instead of holding them as part of their business strategy.

In light of these concerns, Strategy urged MSCI to withdraw the proposal for excluding companies with over 50% digital asset holdings from its Global Investable Market Indexes. 

The firm asserted that the proposal is rooted in a flawed understanding of DATs and would impose conditions unaligned with national interests, particularly those advocating for the responsible growth of the digital asset space.

As of this writing, the company’s stock, trading under the ticker symbol MSTR, is trading at $185. There has been almost no difference since Tuesday’s trading session amid consolidating crypto prices. 

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