MSCI Halts Plan to Exclude Crypto-Heavy Firms, Offering Reprieve to MicroStrategy

In a significant development for the digital asset market, index compiler MSCI (Morgan Stanley Capital International) has announced a temporary pause on its controversial proposal to exclude “Digital Asset Treasuries” (DATs) from its widely followed index products. This news immediately sent shares of MicroStrategy (MSTR), the publicly traded company with the largest Bitcoin holdings, soaring.

The positive announcement sparked a wave of relief, with MicroStrategy’s stock, a component of MSCI’s indices, surging over 6% to $168.4 in Tuesday’s after-hours trading. This strong rebound effectively erased an intraday decline of approximately 4%, transforming market sentiment from apprehension to renewed optimism.

The Initial Proposal: A Threat to Crypto-Heavy Stocks

The saga began last October when MSCI unveiled a proposal that sent shockwaves through the crypto and traditional finance sectors. The firm announced a review of its “Global Investable Market Index (GIMI)” inclusion criteria, specifically targeting companies where digital assets constituted over 50% of their total assets. These entities, deemed “fund-like,” were slated for removal during the index’s quarterly adjustment in February of this year. Such a move would have subjected companies like MicroStrategy to substantial passive selling pressure, as institutional funds tracking MSCI indices would be forced to divest their holdings.

MSCI’s primary concern stemmed from its view that companies with significant cryptocurrency reserves, such as MicroStrategy and Bitmine, functioned more as “passive investment vehicles” rather than traditional operating companies with core business operations. Under MSCI’s established guidelines, investment-focused entities—analogous to funds or holding companies—are generally ineligible for index inclusion.

Strong Market Backlash and MSCI’s Reversal

However, the proposal was met with immediate and fierce opposition from market participants. Critics argued that the deliberate exclusion of DAT companies would undermine the fundamental principle of indices objectively reflecting the market. Furthermore, they highlighted the lack of standardized global accounting treatment for crypto assets, making the proposed 50% threshold arbitrary, difficult to implement, and potentially unfair.

Responding to the widespread criticism, MSCI issued a statement on Tuesday, signaling a crucial pivot: “For companies on the preliminary list with over half their assets in digital assets, their current index inclusion status will temporarily remain unchanged.” This decision offers a significant reprieve to the 18 MSCI index components among the 39 companies initially identified as DATs, which were facing imminent removal.

Not a “Get Out of Jail Free Card”: Future Scrutiny Looms

While MicroStrategy and its peers have secured a temporary reprieve, this does not equate to a permanent “get out of jail free card.” JPMorgan had previously warned that MicroStrategy’s exclusion from heavyweight indices like the Nasdaq 100 and MSCI World Index could trigger billions of dollars in passive fund outflows, severely impacting its stock price.

MSCI explicitly stated that institutional investor concerns regarding DAT companies behaving too much like investment funds persist. Consequently, the firm will embark on a more extensive review to establish new evaluation standards for all “non-operating companies.” This broader assessment suggests that future eligibility for index inclusion may be determined through rigorous analysis of financial statements and other indicators, ensuring a stricter definition of what constitutes a qualified operating company.

Commenting on these developments, TD Cowen analyst Lance Vitanza adopted a “cautiously optimistic” stance:

“This development is more positive than we originally expected. However, whether this is a defensive victory, or a stay of execution, remains to be seen.”

Vitanza maintains a “Buy” rating on MicroStrategy, with a target price of $500.

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