Bitcoin Backers Resist Exclusion from MSCI Indices

The Debate Over Bitcoin in MSCI Indexes

Crypto professionals are expressing strong opposition to the potential exclusion of Bitcoin treasuries from MSCI indexes. They argue that such a move could prevent investors from accessing a lucrative market niche. The MSCI is considering excluding Data Asset Trusts (DATs) that have invested over 50% of their assets in Bitcoin or other cryptocurrencies, claiming these entities are more like investment funds than traditional operating companies.

This proposal has sparked significant backlash within the industry and from leaders such as Michael Saylor of Strategy and Viek Ramaswamy of Strive Asset Management. The MSCI announced its possible exclusion plans in October, with a final decision expected to be made at the beginning of next year.

Industry Leaders Speak Out

Adam Levine, CEO of Fireblocks, warned that the MSCI's plan might backfire and not resonate well with institutional investors. He noted that these investors have already shown interest in crypto in recent years and may need to rebalance their holdings to track the index. Levine also pointed out that businesses could miss out on tokenized equity if the MSCI excludes certain companies.

Levine compared the potential exclusion to ignoring early internet companies 30 years ago, especially now that businesses are innovating with tokenized equity and stablecoins. This analogy highlights the concern that the MSCI could be missing out on key players in the evolving financial landscape.

Spencer Hallarn, head of OTC trading at GSR, emphasized that the decisions by the MSCI and other index providers to exclude DATs have real implications for the broader industry. However, he believes the rumored exclusion has been well planned for, suggesting that the market has already priced it in. It is unlikely to come as a surprise, he added.

Market Predictions and Reactions

Business Insider predicts that the MSCI’s potential exclusion of DATs has already been factored into the market’s outlook despite the likely adverse implications for DATs. Wojciech Kaszycki, chief strategy officer at BTCS S.A., predicts that Bitcoin can still recover from the bear market and that a rebound is definitely coming.

Strive Asset Management, a Nasdaq-listed crypto-related firm, is among many urging the MSCI to scrap its potential exclusion plans. The company argues that cutting off BTC-focused DATs is unfair because they are crucial to structured finance and AI infrastructure. MSCI’s chairman and CEO, Henry Fernandez, believes the exclusion risks shutting down passive investors from a fast-growing market.

Financial Implications and Strategic Concerns

JPMorgan warns that Strategy could lose nearly $2.8 billion if the MSCI index decides to exclude such Bitcoin treasuries. Strategy’s Saylor has confirmed that talks with MSCI are ongoing, as the company remains opposed to the move.

Matt Cole, CEO of Strive, argues that the proposed exclusion misunderstands the role played by large Bitcoin firms in emerging industries, particularly in the field of AI. He notes that potential exclusion targets, such as MARA, Riot Platforms, and Hut 8, are expanding into AI by repurposing data centers for high-intensity compute workloads.

Cole further points out that these companies will continue holding substantial Bitcoin reserves amid increasing AI revenue. He emphasizes that the MSCI’s exclusion would permanently isolate a sector of the crypto industry that sits at the intersection of the next generation of computing and crypto.

Practicality of Exclusion Thresholds

Strive challenges the practicality of the MSCI’s exclusion threshold of 50% or more, highlighting the Trump Media & Technology Group as an example. The Trump-backed company narrowly avoided the initial MSCI exclusion because its BTC exposure is currently below the cutoff.

Strive suggests a parallel version of MSCI’s index for ex-DATs, rather than a blanket rule. The company says this will allow asset managers to avoid crypto-heavy firms as they await the MSCI’s final decision.

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