The MSCI Index Exclusion Risk for Strategy Inc. and Its Implications for Bitcoin Treasury Companies

The ongoing review of Strategy Inc. (MSTR) by MSCI for potential exclusion from its equity indices has ignited a critical debate about the classification of digital-asset-focused firms in traditional financial markets. As a company whose valuation is increasingly tied to its Bitcoin holdings rather than operating revenue, Strategy Inc. represents a growing segment of firms leveraging blockchain technology to reshape corporate treasuries. However, this innovative approach now places it at the center of a regulatory and market integrity dilemma.

MSCI's Review and the Exclusion Criteria

MSCI is currently evaluating whether to remove Strategy Inc. from its indices, citing concerns that its business model resembles a "digital-asset-treasury company" rather than a traditional software firm. According to a report by JPMorgan, the firm is among 38 companies under scrutiny for deriving a significant portion of their market capitalization from Bitcoin holdings. MSCI's criteria for exclusion focus on whether a company's primary function aligns with conventional equity benchmarks, which prioritize stable financial performance and revenue-driven valuations.

This reclassification effort reflects MSCI's broader strategy to maintain the integrity of mainstream equity indices amid rapid market evolution.

If Strategy Inc. is excluded, it could trigger $2.8 billion in passive outflows from ETFs and mutual funds tracking MSCI indices. The impact could escalate to $8.8 billion if other index providers follow suit, as such funds are obligated to rebalance portfolios to align with updated index compositions.

The S&P 500's Stance and Market Implications

Strategy Inc.'s exclusion from the S&P 500 during its September 2025 rebalancing further underscores the challenges faced by Bitcoin treasury companies. Despite meeting basic eligibility criteria, the firm was omitted due to its increasing resemblance to a Bitcoin holding vehicle rather than a traditional software company. Analysts highlight that Strategy's valuation is heavily influenced by unrealized Bitcoin gains and losses, leading to concerns about earnings volatility and quality.

This decision signals a broader skepticism from index providers toward firms whose financial performance is inextricably linked to cryptocurrency markets. For investors, this creates a dual risk: valuation instability and reduced institutional support as passive capital flows realign with traditional benchmarks.

Passive Outflows and Market Volatility

The potential exclusion of Strategy Inc. from MSCI indices has already contributed to heightened volatility in its stock. Over the past three months, MSTR shares have fallen 47.5%, with a year-to-date decline of 55% according to analysis. This mirrors Bitcoin's drawdown and reflects investor uncertainty about the firm's long-term positioning. If MSCI finalizes its exclusion, the forced selling by index-tracking funds could exacerbate downward pressure on MSTR's stock, compounding losses for shareholders.

Moreover, the ripple effects extend beyond Strategy Inc. to the broader category of Bitcoin treasury companies. Firms like Marathon Digital Holdings and Hut 8-also under MSCI's review-face similar risks of reclassification and capital outflows. This could create a self-reinforcing cycle: reduced institutional ownership, lower liquidity, and further volatility, undermining the credibility of digital-asset treasuries as a mainstream investment strategy.

Strategic Considerations for Investors

For investors, the MSCI review highlights a critical inflection point for Bitcoin treasury companies. While these firms have pioneered a novel approach to corporate capital allocation, their reliance on cryptocurrency valuations exposes them to regulatory and market risks. Passive capital outflows, driven by index reclassifications, could accelerate the divergence between digital-asset-focused equities and traditional benchmarks.

However, this also presents an opportunity for active investors to reassess the fundamentals of these companies. Strategy Inc.'s core software business, for instance, remains a viable asset, but its current valuation is heavily distorted by Bitcoin's price action. A successful transition to a more traditional revenue model-while retaining strategic Bitcoin holdings-could mitigate exclusion risks and restore investor confidence.

Conclusion

The potential exclusion of Strategy Inc. from MSCI indices is not merely a technical adjustment but a symbolic shift in how markets perceive digital-asset treasury companies. As index providers recalibrate their criteria, the broader implications for Bitcoin treasury firms will hinge on their ability to balance innovation with financial stability. For now, investors must remain vigilant, recognizing that the intersection of blockchain and traditional finance is both a frontier of opportunity and a minefield of volatility.