The Strategic Implications of MSCI's Decision to Retain DATCOs in Its Indexes

The recent decision by MSCI to retain Digital Asset Treasury Companies (DATCOs) in its global indexes marks a pivotal moment in the evolution of institutional investment in digital assets. By choosing not to exclude firms like Strategy (MSTR), which hold over 50% of their assets in cryptocurrencies such as Bitcoin, MSCI has averted a potential destabilization of crypto markets while signaling a nuanced approach to balancing innovation and investor protection. This decision underscores the growing strategic importance of index inclusion as a catalyst for institutional adoption and long-term capital flow dynamics in the digital asset space.

Understanding DATCOs and MSCI's Rationale

MSCI defines DATCOs as public companies where more than half of their assets are held in digital assets, a classification that blurs the line between operating businesses and investment vehicles. The firm initially proposed excluding such entities from its major indexes, including the MSCI All Country World Index, citing concerns over volatility, governance risks, and the potential misalignment with traditional equity benchmarks. Analysts warned that such an exclusion could trigger up to $8.8 billion in forced selling from index-linked funds, exacerbating market fragility. However, MSCI ultimately opted to maintain the status quo, acknowledging the need for further research to distinguish between investment-like entities and operating companies.

This decision reflects a recognition of the evolving nature of corporate treasuries and the increasing integration of digital assets into mainstream finance. By delaying a definitive policy shift, MSCI has allowed time for stakeholders to engage in dialogue and for market participants to adapt to the unique characteristics of DATCOs.

Index Inclusion as a Catalyst for Institutional Adoption

Index inclusion has historically served as a powerful driver of institutional capital flows. For instance, the approval of U.S. spot Bitcoin and Ethereum exchange-traded products (ETPs) in 2024 led to a surge in crypto ETP assets under management (AUM), surpassing $130–160 billion by year-end. This growth was fueled by regulatory clarity and the availability of structured investment vehicles that reduced operational complexity for institutional investors. Similarly, the inclusion of DATCOs in MSCI's indexes provides a critical on-ramp for institutional capital, enabling passive and active investors to gain exposure to digital assets through familiar benchmark frameworks.

The strategic value of index inclusion lies in its ability to legitimize emerging asset classes. As of 2025, 68% of institutional investors have invested or plan to invest in Bitcoin ETPs, with 94% expressing confidence in blockchain technology's long-term potential. By retaining DATCOs, MSCI reinforces the perception of digital assets as a legitimate component of diversified portfolios, encouraging further allocations from pension funds, endowments, and other institutional players.

Strategic Implications of MSCI's Decision

The immediate effect of MSCI's decision is the preservation of market stability. Analysts had cautioned that excluding DATCOs could trigger a cascade of forced selling, potentially destabilizing Bitcoin's price. By avoiding this scenario, MSCI has provided a buffer for crypto markets to mature while allowing institutional investors to continue building exposure without abrupt disruptions.

Longer-term, the decision highlights the tension between innovation and traditional index methodologies. Critics argue that MSCI's proposed exclusion criteria-focusing on balance-sheet thresholds rather than operational fundamentals- undermine index neutrality. For example, a company with 51% Bitcoin assets is treated differently from one with a similar concentration in real estate or equities, creating inconsistencies in classification. This debate underscores the need for a more holistic framework that accounts for the unique attributes of digital assets while maintaining alignment with investor protection mandates.

The Debate on Index Neutrality

MSCI's approach has sparked a broader conversation about the principles guiding index composition. Historically, index classifications have prioritized operational reality, such as revenue sources and commercial activity, over balance-sheet metrics. The proposed DATCO exclusion, however, shifts the focus to asset composition, a departure that critics argue could distort market neutrality. For instance, firms like Strategy have emphasized their status as operating businesses, not passive funds, and warned that exclusion would misrepresent their economic role.

This debate is not unique to digital assets. Similar challenges have emerged in sectors like real estate and private equity, where the line between operating companies and investment vehicles can be similarly blurred. MSCI's decision to pause exclusions reflects a recognition of these complexities and the need for a more nuanced approach to index design in an era of rapid financial innovation.

Looking Ahead

The February 2026 index review will be a critical juncture for DATCOs and the broader digital asset ecosystem. In the interim, MSCI's decision to retain DATCOs has provided clarity for market participants while keeping the door open for future adjustments. This flexibility is essential in a sector characterized by rapid technological and regulatory evolution.

For institutional investors, the retention of DATCOs in major indexes offers a strategic opportunity to deepen their exposure to digital assets. As of 2025, 47% of digital-asset holdings in private-capital funds are concentrated in applications and infrastructure, suggesting that the sector's value proposition extends beyond speculative trading. By aligning with MSCI's evolving framework, institutional investors can position themselves to capitalize on the long-term growth of blockchain technology while managing risks through diversified allocations.

Conclusion

MSCI's decision to retain DATCOs in its indexes is a strategic acknowledgment of the transformative role digital assets are playing in global finance. By prioritizing market stability and engaging with stakeholders, MSCI has navigated a complex policy challenge while reinforcing the importance of index inclusion as a catalyst for institutional adoption. As the digital asset landscape continues to evolve, the interplay between index design, capital flows, and regulatory clarity will remain central to shaping the future of institutional investment.