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- MSCI’s proposed 50% digital-asset rule could unfairly exclude operating companies from its indices.
- Digital Asset Treasury (DAT) firms like Strategy actively use their holdings to create shareholder value.
- Arbitrary exclusion may undermine market neutrality, innovation, and U.S. leadership in digital finance.
Strategy Inc., a pioneer in Bitcoin treasury management, has challenged MSCI’s proposal to exclude companies whose digital assets make up more than half of their total assets. Strategy, founded in 1989, is now the world’s largest Bitcoin treasury company.
The firm is using Bitcoin extensively for the creation of novel financial instruments such as digital credit instruments and innovative equity and debt instruments. Unlike other investment funds that are passive, Strategy is using the invested resources to create value for its shareholders. When investors invest in Strategy, they invest in the management and strategy of the firm, along with the technology the firm employs, apart from the Bitcoin.
Other industries, like energy or real estate businesses, primarily invest in a single type of asset and are not considered investment funds. The MSCI proposal targets digital assets discrimapatically by labeling DATs as passive investors rather than active participants.
The 50% Threshold Is Arbitrary and Unworkable
However, this rule would generate challenges, especially for digital asset companies. The values of these assets keep fluctuating every day, making it difficult to adhere to this rule. Additionally, accounting terms differ internationally, making this rule even harder to enforce.
Companies could rearrange themselves in order to fall below this threshold, which would require MSCI to monitor and intervene on a constant basis. Selective regulation of digital assets is not in line with how MSCI indexes other industries.
Companies like oil, timber, gold, media, and real estate often have a concentrated asset base but do not qualify for exclusion. The 50% rule specific to the digital asset class distorts the fairness MSCI claims to provide for investors and regulators.
Implications for Innovation and U.S. Leadership
Digital assets are more than just an investment; they are also the basis for future financial infrastructure. The value of bitcoin stands at an estimated $1.85 trillion. Innovative approaches in digital finances are encouraged by U.S. policy due to its ability to enhance future growth potential.
Excluding DATs might divert funds to this new sector. It might reduce the ability of financial institutions that are engaged in the design of new financial instruments to be flexible in their operations. Scholars suggest that MSCI should give digital asset markets sufficient time to mature before restricting them.
In conclusion, DATs such as Strategy are the “next generation” of operating companies developing innovative financial infrastructure. To arbitrarily exclude DATs from indices is to risk distorting the representation of the market, hindering innovation, as well as defying U.S. economic concerns. MSCI’s independent position as a standard-setter is put into question.
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