The MSCI Exclusion of Digital Asset Treasury Companies: A Tectonic Shift in Passive Investing and Sector Viability

The impending decision by MSCI to exclude digital asset treasury (DAT) companies from its major equity indexes has ignited a firestorm in financial markets, signaling a pivotal moment for firms that have embraced Bitcoin and other cryptocurrencies as core balance-sheet holdings. This move, if finalized, could reshape the landscape of passive investing, trigger massive capital outflows, and redefine the viability of the DAT sector.

MSCI's 50% Threshold: A Line in the Sand

MSCI's proposed exclusion targets companies where digital assets constitute 50% or more of total assets, arguing such firms resemble investment funds rather than operational businesses. This threshold directly impacts firms like Strategy (formerly MicroStrategy), which holds over 660,000 Bitcoin with a value exceeding $60 billion. The index provider's consultation period closed on December 31, 2025, with a final decision expected by January 15, 2026, and implementation slated for the February 2026 Index Review.

Critics, including Strategy, argue the 50% threshold is arbitrary and discriminatory. They emphasize their operational revenue streams and business models, contending that exclusion would unfairly penalize innovation in corporate treasury strategies according to Strategy's analysis. However, MSCI maintains that its benchmarks must align with traditional equity indices, which typically exclude investment funds as per MSCI's official guidance.

The Passive Investing Tsunami: Outflows and Market Volatility

The stakes are monumental. Analysts estimate that Strategy alone could face up to $8.8 billion in outflows if excluded from MSCI and other major indexes like the Nasdaq 100 according to Reuters reporting. This figure could balloon further if S&P and FTSE Russell follow MSCI's lead. JPMorgan has warned that coordinated exclusions across index providers could amplify outflows, potentially destabilizing the DAT sector's liquidity and market capitalization as JPMorgan's analysis indicates.

Historical precedents underscore the power of index decisions. For instance, additions or removals from the S&P 500 have historically driven heightened returns and volatility, often creating self-reinforcing cycles of overvaluation in large-cap stocks according to UCI research. Passive funds, which allocate capital mechanically based on index composition, could exacerbate these effects, accelerating capital flight from DATs and into traditional assets like regulated Bitcoin ETFs as JPMorgan modeling suggests.

S&P and FTSE Russell: A Diverging Approach

While MSCI has taken a firm stance, S&P and FTSE Russell have adopted a more cautious approach. S&P has quietly excluded DAT companies from its indices, though it has not yet issued a formal policy according to a LinkedIn post. FTSE Russell, meanwhile, has not launched a consultation but is under pressure to act. JPMorgan modeling suggests that if FTSE Russell aligns with MSCI, outflows could reach $8.8 billion, further straining the DAT sector as JPMorgan's analysis indicates.

Notably, FTSE Russell has announced a shift to semi-annual reconstitutions of its U.S. indexes starting in 2026, a move that could expedite adjustments to DAT inclusion criteria according to LSEG's announcement. This flexibility may allow the index provider to respond rapidly to market dynamics or regulatory shifts.

Broader Implications: Sector Viability and Market Dynamics

The exclusion of DAT companies from major indexes risks more than just capital outflows-it could fundamentally alter the sector's viability. Over 200 U.S. public companies have adopted digital asset treasuries, collectively holding $115 billion in crypto according to Cryptoslate reporting. If excluded, these firms may struggle to attract institutional investors reliant on passive strategies, which dominate global equity markets.

Moreover, the reclassification of DATs as "investment-like" entities could trigger a broader reevaluation of corporate governance and regulatory frameworks. Regulators may face pressure to clarify the boundaries between operational businesses and investment vehicles, particularly as DAT strategies gain traction.

Conclusion: A Watershed Moment for DATs

MSCI's decision, and the potential alignment of other index providers, represents a watershed moment for DAT companies. The exclusion of these firms from major benchmarks could catalyze a shift in capital allocation, favoring traditional financial instruments over corporate crypto holdings. For investors, the implications are twofold: heightened volatility in DAT stocks and a potential reallocation of passive flows toward regulated crypto products.

As the financial industry awaits MSCI's final ruling, one thing is clear: the DAT sector stands at a crossroads. The outcome will not only determine the fate of individual firms but also shape the future of how markets value innovation in corporate treasury strategies.