Strategy challenges MSCI’s ‘non-operating’ label – What changes for MSTR?

Strategy, the world’s largest Bitcoin treasury firm, has asked global index provider MSCI Inc. to withdraw its latest exclusion proposal. 

The firm called MSCI’s proposal ‘misguided’ and opposed it on four grounds. First, the move is biased and targets DATs (digital asset treasuries). 

The proposal is a pretext for targeting DATs, repackaging MSCI’s own withdrawn 2025 proposal to exclude companies with 50%+ digital asset holdings in a different language, but reaching the same result.

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MSCI wants to exclude firms it calls ‘non-operating‘ companies that buy and hold assets, ideally acting like passive investment funds. For an index provider, only active businesses with real operating cash should be included in its Global Investable Markets Indexes (GIMI). 

Strategy defends MSTR, other DATs on MSCI indices

The latest MSCI expanded exclusion framework would exclude MSTR, Metaplanet, and a firm that buys and holds Uranium. Beyond targeting crypto, Strategy discredited the proposal as flouting key laws and standards. 

It added that the exclusion plan goes against U.S accounting standards, securities law, and MSCI’s market neutrality. 

Notably, Strategy slammed MSCI’s classification of Bitcoin as a “non-operating” asset and added, 

Based on U.S. GAAP and SEC guidance, Strategy reports its Bitcoin business as an operating segment and its Bitcoin gains and losses as operating expenses.

Feedback on the proposal is set to run until the end of September. If the proposal is adopted, it’ll become effective by December 1st. 

For his part, Michael Saylor, founder of Strategy, urged MSCI to be “a mirror of the market, not an arbiter of it.” 

Phong Le, Strategy’s CEO, also reinforced a similar framing, noting that, 

S&P, FTSE, Bloomberg, Nasdaq, and ICE broadly reflect the market. MSCI seems to be going its own way, against U.S. policy priorities and beyond established securities-law and accounting frameworks.

Could MSTR face billions in outflows?

Last year, JPMorgan analysts warned that the MSCI exclusion could trigger $2.8B of MSTR fund liquidations. However, they added that other indices like LSEG’s Russell index and Nasdaq could extend to nearly $9B in outflows. 

But Strategy downplayed the impact. 

Funds that track MSCI indices represent ~3% of MSTR shares outstanding, which is only ~60% of one day’s trading volume.

DATs have reinforced an institutional momentum for the broader sector. Collectively, these firms own about $3B worth of crypto assets, down from +$8B at the peak of the bull market. 

Pushing them out of MSCI and other indices would likely affect the segment. In fact, JPMorgan analysts added that the move would thin out liquidity and make the stocks less attractive even to other investors. 

It’s unclear if DATs will evolve and overcome MSCI’s plan.  

Final Summary

• Strategy asked MSCI to withdraw the proposal and be neutral like Nasdaq and LSEG-owned Russell indices 
• JPMorgan had earlier warned that other indices could follow MSCI’s move and strain the DAT sector.