Index Exclusion Risk and Liquidity Pressures for Digital Asset Firms

The integration of digital assets into traditional finance has created a paradox: while cryptocurrencies like Bitcoin are hailed as the future of money, the firms that hold them as core assets are now at risk of being excluded from the very financial systems they aim to join. This tension is crystallizing around a critical issue: index exclusion risk. As major index providers like MSCI evaluate whether to remove digital asset treasury (DAT) firms from their benchmarks, the implications for liquidity, capital structure, and institutional credibility are profound.

The Index Exclusion Dilemma

MSCI is currently reviewing whether to exclude DATs-companies holding over 50% of their balance sheets in cryptocurrencies-from its core equity benchmarks. The rationale? These firms increasingly resemble investment funds rather than traditional operating businesses, a classification that disqualifies them from inclusion in indices like the MSCI World or Nasdaq 100. If excluded, the result could be billions in passive outflows. For example, JPMorgan estimates that Strategy, a leading DAT firm, could face up to $2.8 billion in selling pressure if removed from MSCI indices, with nearly $9 billion of its market cap currently tied to passive index funds.

This decision, expected by January 15, 2026, is not merely technical-it's existential. Index inclusion has become a proxy for institutional credibility. Firms like Riot and Marathon, which rely on index exposure to attract institutional capital, risk losing access to a critical source of liquidity. As one analyst notes, "If you're not in the index, you're not part of the system."

Capital Structure Vulnerability

The exclusion risk exacerbates an existing fragility in DATs' capital structures. These firms often operate with balance sheets heavily skewed toward volatile crypto assets. For instance, BitMine, Metaplanet, and SharpLink collectively hold $5.8 billion in unrealized losses in their crypto treasuries, with their market-cap-to-net-asset-value (mNAV) ratios now below 1-a red flag for investors. This imbalance makes it harder to raise new capital through equity offerings, as depressed mNAV ratios signal financial strain.

The problem is compounded by the liquidity mismatch between crypto assets and traditional markets. While DATs market themselves as regulated gateways for institutional investors, their reliance on crypto holdings exposes them to sudden devaluations. If MSCI excludes them, the forced selling of assets to meet capital calls could create a self-fulfilling prophecy: falling prices trigger more selling, further depressing liquidity.

Strategic Responses and Infrastructure Innovations

Faced with these risks, DATs are adopting defensive strategies. Some, like mF International, are raising capital through private placements (e.g., a $500 million PIPE to launch a Bitcoin Cash treasury strategy) to stabilize their balance sheets. According to reports, mF International has taken steps to strengthen its capital position. Others are turning to AI-driven risk management tools. GSCAI's AI-powered platform aims to provide real-time insights for investors navigating crypto volatility.

Meanwhile, infrastructure providers like SignalPlus are bridging the gap between traditional finance and crypto markets. By offering institutional-grade trading tools and analytics, SignalPlus enables firms like Cumberland and Galaxy to execute trades with precision, mitigating liquidity risks. According to a press release, SignalPlus has enhanced its platform to support institutional clients in digital asset trading. These innovations highlight a broader trend: as index inclusion becomes uncertain, DATs are investing in tools to survive in a fragmented ecosystem.

The Bigger Picture: A Systemic Test

The MSCI decision is more than a regulatory checkbox-it's a stress test for the entire digital asset sector. If DATs are excluded, the resulting outflows could accelerate a shift toward pure-play crypto funds, which are less reliant on equity markets. Conversely, if MSCI retains DATs, it would signal a broader acceptance of crypto as a corporate asset class, albeit with stringent governance requirements.

For investors, the lesson is clear: DATs are not immune to the same liquidity and capital structure risks that have plagued crypto markets for years. Their survival will depend on their ability to diversify revenue streams, hedge crypto exposure, and prove their operational substance beyond their balance sheets.

Conclusion

Index exclusion risk is a microcosm of the larger challenges facing digital asset firms. As MSCI's decision looms, the sector must grapple with its identity: Are DATs operating businesses or crypto funds in disguise? The answer will shape not only their capital structures but also the future of crypto's integration into global finance. For now, the clock is ticking-and the stakes are high.