MSCI has finalized a rule change that threatens to remove Bitcoin treasury companies such as Michael Saylor's Strategy from its widely tracked equity indexes. MSCI said in an announcement dated Oct. 15 that "non-operating companies" will be ineligible for the MSCI Global Investable Market Indexes. The change implements a proposal MSCI introduced in August, with minor modifications. The change takes effect at the close of Nov. 30 as part of MSCI's November index review.
The methodology screens for corporate issuers that lack substantial operating assets and behave more like passive investment vehicles than operating businesses. Companies that fail an initial "core screen" undergo an exclusion test based on five financial ratios. A stock becomes ineligible if the company meets four or more of those exclusion criteria.
The rule targets companies whose balance sheets are dominated by a single asset. Strategy pioneered that model and holds hundreds of thousands of Bitcoin. Japan's Metaplanet and other companies have adopted the model.
MSCI included buffers to limit changes in index membership. Current constituents will be removed only if they fail the screening process in each of their two most recent annual filing periods. New additions will be blocked if they fail in either of the last two annual filing periods. MSCI said MSCI would publish the final list of affected companies on Nov. 11.
The decision ends a temporary measure that MSCI introduced last year as the crypto-treasury trend expanded. MSCI had frozen certain index adjustments for companies whose digital-asset holdings represented 50% or more of total assets. MSCI is scrapping that measure and will assess all such companies under the new rules.
Removal from major MSCI indexes would force index-tracking funds to sell affected shares, cutting off a significant source of passive investment demand. Those sales could pressure stock prices and reduce the premium these companies have traded at over the value of their crypto holdings. Saylor had urged MSCI to drop what Saylor called a "discriminatory" rule that would remove Strategy from MSCI's benchmarks.
The threat has prompted defensive actions. Metaplanet recently sold 10,000 Bitcoin and bought back 11,000 Bitcoin to demonstrate active treasury management. Strategy has continued accumulating Bitcoin despite the uncertainty over index membership.
MSCI Finalizes Rule to Remove Bitcoin Treasury Companies from Indexes
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Summary
MSCI has finalized a rule change affecting companies with heavy Bitcoin treasury holdings, including MicroStrategy, removing them from its equity indexes. The rule, effective November 30, targets firms with balance sheets dominated by a single asset. Companies failing the screening in two consecutive annual periods will be dropped. The move impacts asset allocation strategies and may alter the risk-to-reward ratio for investors. Index-tracking funds may be forced to sell shares, reducing passive demand and stock premiums.
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