Digital Asset Treasuries and the MSCI Exclusion Debate: A Misstep for Diversified Portfolios

The debate over whether digital asset treasuries (DATs) should be excluded from major indices like MSCI's Global Investable Market Indexes has intensified in 2025, with far-reaching implications for investors seeking diversified portfolios. At the heart of the controversy lies MSCI's proposed exclusion of companies holding 50% or more of their assets in digital assets-a threshold critics argue is arbitrary and risks undermining innovation and market efficiency. This analysis argues that excluding DATs is a misstep, as they offer unique diversification benefits and risk-return characteristics that align with evolving investment needs, particularly in a world where traditional asset correlations are breaking down.

MSCI's Proposal and Industry Pushback

MSCI's consultation period for its exclusion policy has drawn sharp criticism from companies like MicroStrategy (MSTR), which holds Bitcoin as a core asset. The firm argues that DATs are operating businesses, not investment funds, and their exclusion would distort market dynamics and harm U.S. competitiveness in digital asset innovation. MSTR has highlighted the inconsistency of the 50% threshold, noting that industries like oil and real estate, which often hold concentrated assets, face no similar scrutiny according to MSCI data. This critique is not merely semantic: JPMorgan estimates that MSTR alone could face $2.8 billion in passive outflows if the exclusion is implemented, creating a ripple effect in the Bitcoin mining sector.

Diversification in a Shifting Market

The case for DATs as portfolio diversifiers is rooted in the evolving risk landscape of 2025. Traditional diversification tools-such as bonds and international equities-have lost efficacy as stock-bond correlations shift and U.S. equities concentrate around AI-driven sectors according to BlackRock's 2025 outlook. In this environment, digital assets and DATs offer a novel source of uncorrelated returns. For instance, DATs like MicroStrategy act as leveraged proxies for cryptocurrencies, amplifying exposure to Bitcoin's price action while integrating into corporate balance sheets. While AI stocks (e.g., NVIDIA) have shown stronger diversification benefits than AI cryptocurrencies, the latter's volatility remains a double-edged sword according to empirical studies. A balanced approach-combining selective DAT exposure with traditional assets like fixed income-could enhance risk-adjusted returns, as BlackRock's 2025 investment outlook suggests.

Risk-Return Profiles and Systemic Implications

DATs' risk-return profiles are undeniably volatile. Empirical studies show that DAT stocks amplify cryptocurrency volatility, with some firms exhibiting betas of 1.34 relative to Bitcoin. This volatility stems from leveraged capital structures and direct exposure to crypto price swings, which can exacerbate losses during downturns. However, this volatility is not inherently detrimental. For investors seeking asymmetric risk-reward tradeoffs, DATs can serve as high-conviction bets in a diversified portfolio. Moreover, well-structured DATs with disciplined treasury governance-such as those with robust liquidity buffers-are better positioned to weather market stress than smaller, overleveraged peers. Excluding them entirely ignores the nuanced reality that not all DATs are created equal.

The Cost of Exclusion

MSCI's proposed exclusion risks creating unintended consequences. By sidelining DATs, the index would distort market dynamics, particularly in sectors like Bitcoin mining, where passive outflows could trigger forced selling and short-term turbulence according to Strategy analysis. Furthermore, the exclusion could stifle innovation by signaling a lack of institutional support for digital asset adoption-a move Strategy has likened to a threat to U.S. national security according to financial analysis. In a global race to lead in digital finance, such a policy risks ceding ground to jurisdictions more open to crypto integration.

Conclusion

The MSCI exclusion debate underscores a broader tension between regulatory caution and market innovation. While DATs are undeniably volatile, their role in diversifying portfolios-particularly in a world of shifting correlations-cannot be dismissed. Excluding them risks not only distorting market efficiency but also undermining the U.S.'s position in the digital asset ecosystem. For investors, the lesson is clear: a diversified portfolio must evolve with the times, embracing alternatives like DATs while managing their inherent risks through disciplined allocation.