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

Overview

Strategy, formerly known as MicroStrategy, has voiced strong opposition to a proposal by Morgan Stanley Capital International (MSCI) that seeks to exclude digital asset treasury companies (DATs) from its indexes. The firm criticized the proposed exclusion criteria and emphasized the need for fair treatment of digital asset companies within the investment landscape.

Opposition to MSCI’s Proposal

In a recent letter, signed by Michael Saylor and CEO Phong Le, Strategy expressed its support for MSCI’s efforts in establishing consistent eligibility criteria across its indices. However, the firm took issue with the threshold proposed for excluding firms with more than 50% digital assets on their balance sheets, labeling it as “misguided.” Strategy argued that this exclusion could have detrimental effects not only on its operations but also on the wider cryptocurrency market.

The company highlighted its operational flexibility compared to traditional investment funds, stating that it can adapt its value-creation strategies in alignment with the evolving technology behind Bitcoin. This adaptability, according to Strategy, is a critical asset for investors and sets DATs apart from conventional digital asset investment vehicles.

Critique of the Exclusion Threshold

The letter criticized the 50% digital asset threshold as “discriminatory and arbitrary.” Strategy argued that this measure imposes unfair conditions on digital asset companies while allowing other industries—such as oil, timber, and real estate—to maintain concentrated asset holdings without facing similar scrutiny. Additionally, the firm raised concerns that enforcing this rule would complicate the indexing process, necessitating new methods to measure balance sheet concentration due to varying accounting principles across different asset classes and jurisdictions.

Furthermore, Strategy elaborated on how the exclusion of DATs could stifle innovation within the digital asset industry, which is currently promoted by the administration as part of its economic strategy. The firm contended that digital assets like Bitcoin have the potential to become foundational elements of global financial systems. However, the proposed measures could limit access to these transformative technologies for pension plans and 401(k) accounts, potentially redirecting billions away from the sector.

Call for a Measured Approach

Strategy cautioned that a hasty exclusion of DATs may stem from misconceptions about their business models, reflecting a misunderstanding of the nature of these entities. The firm advocated for a more thoughtful approach, similar to MSCI’s past treatment of the “Communication Services” sector, which involved extensive consultations and thorough reviews before reorganizing traditional telecom, media, and internet companies.

In light of these concerns, Strategy urged MSCI to reconsider its proposal to exclude companies with over 50% digital asset holdings from its Global Investable Market Indexes. The firm emphasized that the proposal is based on a flawed understanding of DATs and would impose conditions misaligned with national interests, particularly those advocating for the responsible growth of the digital asset space.

From Author

The ongoing debate surrounding MSCI’s proposal to exclude digital asset treasury companies highlights the tension between traditional financial metrics and the unique nature of digital assets. The implications of such exclusions extend beyond individual companies, potentially shaping the future landscape of digital asset investment and innovation.

Impact on the Crypto Market

• Risk of Delistings: If implemented, the exclusion could lead to the delisting of numerous companies engaged in digital assets, affecting their market presence and investor confidence.
• Market Dynamics Distortion: The exclusion may encourage Bitcoin miners to sell their assets instead of holding them, altering market dynamics and potentially impacting Bitcoin’s price stability.
• Innovation Stifling: The proposed criteria could inhibit innovation within the digital asset sector, limiting access to new technologies for institutional investors.
• Investor Sentiment: The response from firms like Strategy reflects a broader concern among investors about how regulatory decisions could influence the growth and acceptance of digital assets.
• Long-term Growth Concerns: The potential exclusion of DATs could redirect billions away from the digital asset sector, raising questions about the long-term viability and integration of these assets into mainstream financial systems.