Digital asset treasury companies could face "meaningful pressure" if the stock market index MSCI decides to exclude them in January, according to an analyst, who told Cointelegraph that this is likely.
The MSCI Index announced in October that it was consulting with the investment community about whether to exclude Bitcoin (BTC) and other digital asset treasury companies (DATs) that have a balance sheet with more than 50% crypto assets.
Some of the feedback has been that DATs can "exhibit characteristics similar to investment funds, which are currently not eligible for index inclusion," according to the MSCI.
Speaking to Cointelegraph, Charlie Sherry, Head of Finance at Australian crypto exchange BTC Markets, said in his view, the odds of the MSCI excluding DATs are "solidly in favour of it," as the index "only puts changes like this into consultation when they’re already leaning that way."
The consultation is open until Dec. 31, with the conclusion to be made public on Jan. 15 next year, and any resulting changes coming into force during February.
Input is also being sought about whether additional parameters should be considered, such as if a company defines itself as a DAT, or has raised capital primarily to accumulate crypto.
If the MSCI decides to exclude DATs, Sharry said index-tracking funds would need to sell, and that alone creates meaningful pressure on the affected names.
A preliminary list notes 38 crypto companies on MSCI’s radar, including Michael Saylor’s MicroStrategy, Sharplink Gaming, and crypto miners Riot Platforms and Marathon Digital Holdings, among others.
"When most of the value comes from a balance-sheet asset rather than the underlying business, MSCI treats that as outside the scope of a traditional equity benchmark," Sherry said. "It’s a risk-management decision designed to keep indexes aligned with predictable business fundamentals."
"This also marks a shift in tone from the past year. Crypto-heavy corporate strategies were applauded as a capital markets innovation. Now the large index providers are tightening their definitions, and it shows that the market is moving out of its everything is adoption phase and back toward a more conservative filter."
A Wednesday note from JPMorgan analysts warned that MicroStrategy could shed $2.8 billion if the MSCI moves ahead, and roughly $9 billion of its estimated $56 billion market value is sitting in passive funds tracked by indexes, Bloomberg reports.
Unclear if Other Indexes Could Follow Suit
Sherry said it’s “hard to call at this stage” if the MSCI’s decision would influence other index providers.
"Index providers often watch each other’s moves, but they don’t always move in lockstep. S&P’s treatment of MicroStrategy shows there’s precedent for taking a stricter view, yet each provider has its own methodology and client base to consider," he said.
"If MSCI makes a change, it could open the door for others to review their own rules, but it doesn’t guarantee a chain reaction."
MicroStrategy still appears on track for possible inclusion in the S&P 500, according to crypto market intelligence company 10X Research, which also predicted in October that there was a 70% chance it will be added to the index before the end of the year.
Clearer Rules Are Good for Crypto
Meanwhile, Sherry also said, clearer rules around corporate classification ultimately help the space.
"When companies understand exactly how their treasury decisions will be treated, it removes uncertainty for both issuers and investors," he added.
"Well-defined frameworks tend to strengthen long-term institutional confidence, even if the short-term impact is uncomfortable for stocks built around Bitcoin holdings."