Strategy Opposes MSCI's Proposal to Exclude Digital Asset Treasury Companies

Strategy, previously known as MicroStrategy, has voiced strong opposition to a proposal from Morgan Stanley Capital International (MSCI) that suggests excluding digital asset treasury companies (DATs) from its indexes. The company argues that this exclusion could negatively impact its operations and the broader cryptocurrency market.

Key Takeaways

Strategy is against MSCI's plan to exclude companies with over 50% digital assets from its indexes.
The firm believes this exclusion is arbitrary and unfair compared to how other industries are treated.
Strategy asserts it has the ability to adapt its strategies according to technological advancements in cryptocurrency.
MSCI’s proposed exclusion could hinder innovation in the digital asset industry.

Strategy

Opposition to Exclusion of Digital Asset Companies

In a recent letter signed by Michael Saylor and CEO Phong Le, Strategy expressed its support for MSCI's efforts to set clear eligibility criteria for its indices. However, it criticized the proposed threshold of excluding firms that hold more than 50% of digital assets on their balance sheets, labeling it as "misguided." This measure could negatively affect not only Strategy but also the entire cryptocurrency market.

Strategy stated that, unlike traditional investment funds, it retains the flexibility to adapt its value creation strategies in response to the evolving technology behind Bitcoin. This adaptability is a significant asset for investors and differentiates Strategy and other DATs from standard digital asset investment vehicles.

The firm compared its investment strategy in a singular asset class to that of real estate investment trusts (REITs) or oil companies, which MSCI categorizes appropriately without classifying them as investment funds. Therefore, it made the case that DATs should be treated similarly.

Concerns Over Arbitrary Thresholds

Strategy's letter highlighted that the proposed 50% digital asset threshold is "discriminatory and arbitrary." It imposes harsher conditions on digital asset firms compared to industries like oil, timber, and real estate, which can maintain concentrated asset holdings without facing the same scrutiny.

The company raised concerns that reinforcing this rule would force MSCI to develop new methods to assess balance sheet concentrations, complicating the indexing process due to diverse accounting standards across various asset types and jurisdictions.

Moreover, Strategy explained how excluding DATs could significantly stifle innovation in the digital asset sector, which the current administration supports as part of its economic strategy. Digital assets, like Bitcoin, could be vital components of future global financial systems, but limiting access to these technologies for pension plans and 401(k)s could redirect billions away from the industry.

Strategy warned that a rushed exclusion could stem from misunderstandings about DATs and their business operations. The firm called for a more thoughtful approach like MSCI’s previous handling of the “Communication Services” sector, which went through significant consultation and review.

If carried out, MSCI's proposal could lead to the delisting of many companies heavily engaged in digital assets. Analysts at JPMorgan estimate that Strategy could face liquidations of up to $2.8 billion directly due to this exclusion.

Such a decision might also distort market dynamics by pushing Bitcoin miners to sell their assets immediately instead of incorporating them into their business models.

In response to these issues, Strategy urged MSCI to reconsider its proposal to exclude companies with over 50% digital asset holdings from its Global Investable Market Indexes. The firm emphasizes that this proposal stems from a flawed understanding of DATs and could impose criteria that does not align with national interests, particularly those promoting the responsible growth of the digital asset sector.

Strategy The daily chart shows MSTR’s consolidation above the $180 level for the past few days. Source: MSTR on TradingView.com

As of now, Strategy's stock, traded under the ticker symbol MSTR, is valued at $185, showing little change since Tuesday's trading session amidst steady crypto prices.

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