Strategy's stock rallies 5% after MSCI says will not bar DATs 'for the time being'

Major stock indices provider and analysis firm MSCI Inc. will not immediately remove digital asset treasuries (DAT) from its index products, after months of uncertainty for crypto-related equities, particularly for the largest corporate crypto holder, Strategy.

MSTR, the largest bitcoin holder in an MSCI index, is up about 4.36% in after-hours trading, retracing a 4% decline on the day, according to Google Finance.

In October, MSCI said it was reviewing whether DATs should remain in its Global Investable Market Indexes (GIMIs) — a series of broad stock market benchmarks that act as a barometer for institutional capital allocation — ahead of an index rebalancing event in February.

"For the time being, the current index treatment of DATCOs identified in the preliminary list published by MSCI of companies whose digital asset holdings represent 50% or more of their total assets will remain unchanged," MSCI wrote in a statement on Tuesday.

Investment concerns

MSCI's primary concern was that DATs, like the largest Bitcoin investor Strategy and ETH buyer BitMine, function more like passive investment fund vehicles, which "are not eligible for inclusion" in their indexes. To align with traditional investment fund classifications, during an October consultation, MSCI proposed a blanket rule to exclude firms with 50% or more of total digital assets on their balance sheet — identifying dozens of firms for potential exclusion.

Critics of the proposal argued that, if approved, MSCI’s new standards would "depart from index neutrality." It would also be difficult methodologically, as various jurisdictions report crypto under different accounting rules, leading to uneven results worldwide, and making the proposed 50% threshold arbitrary.

JPMorgan had said Strategy could face billions in outflows if MSCI and other major indices like the Nasdaq-100, MSCI USA, and MSCI World removed the stock.

Of the 39 firms classified as DATs, about 18 were already current constituents in MSCI indexes and faced removal, while the rest would have been ineligible for future inclusion if the proposal had passed.

"DATCOs currently included in MSCI Indexes will continue to be included, provided they continue to meet all other index inclusion requirements," MSCI said, noting it needs further consultation on the issue.

Broader review

While MSCI decided not to immediately exclude DAT investment companies, the firm’s review “confirmed institutional investor concern that some DATCOs exhibit characteristics similar to investment funds, which are not eligible for inclusion in the MSCI Indexes.”

The firm said it will open a wider review of "non-operating companies generally," and may create new "assessment criteria, such as financial-statement-based or other indicators" to determine whether DATs have "index eligibility."

"This broader review is intended to ensure consistency and continued alignment with the overall objectives of the MSCI Indexes, which seek to measure the performance of operating companies and exclude entities whose primary activities are investment-oriented in nature,” the firm added. 

Strategy Chair Michael Saylor, for one, has argued that the firm's Bitcoin acquisitions are part of its core operations. "No passive vehicle or holding company could do what we’re doing. Index classification doesn't define us," Saylor previously said.

"Distinguishing between investment companies and other companies that hold non-operating assets, such as digital assets, as part of their core operations rather than for investment purposes requires further research and consultation with market participants," MSCI said.