MSCI, a key player in the financial indexing world, is moving to eliminate companies whose main activities revolve around purchasing and retaining Bitcoin. This new proposal targets firms like Strategy, previously MicroStrategy, Metaplanet, and Yellow Cake, categorizing them as non-operating companies. Consequently, such companies would be deemed ineligible for MSCI’s Global Investable Market Indexes.
How does the screening function? MSCI’s proposal introduces a two-step evaluation process. Initially, companies are assessed on their operational asset intensity to determine whether their financial statements indicate a functioning business or merely a collection of assets. Companies that do not pass the first phase must then navigate five specific financial ratios to ascertain their revenue generation capabilities.
The projection from a recent MSCI simulation indicated that only three firms would potentially be excluded from the MSCI ACWI IMI Index: Strategy, Metaplanet, and Yellow Cake PLC, all of which primarily focus on capital raising to stockpile a single type of non-operational asset, be it Bitcoin or uranium. As it stands, Strategy holds approximately 840,447 BTC with a calculated free-float market cap of around $23.93 billion. Metaplanet retains about 43,000 BTC and has an estimated market cap near $654 million. Yellow Cake, on the other hand, deals in physical uranium and boasts a market cap of about $1.81 billion.
The consultation period regarding these proposals is open until September 30, 2026, with MSCI expected to announce its final decision by October 16. If adopted, these changes would take effect no sooner than during the November 2026 index review.
Why is this significant for passive investing? When stocks are included in major MSCI indices, passive investment funds and ETFs are mandated to hold them. Should a stock be removed, these funds will discontinue their positions, potentially creating downward pressure on the respective stock's value. For a large entity like Strategy, which has a significant market cap, such forced selling might have a profound impact on its market valuation.
MSCI has previously attempted to delineate firms that primarily function as digital asset treasury companies, but this latest proposal has a broader scope, applying to any firms that resemble holding vehicles rather than functioning businesses.
What does this classification entail? MSCI has introduced measures to mitigate market volatility. Current index constituents will enjoy a buffer period, requiring them to fail the screening process across two consecutive annual filings before dismissal. In contrast, new applicants will immediately face these rigorous standards.
Even though Strategy has some revenue from its legacy software business, primarily its operations are closely tied to its Bitcoin assets. The company's narrative suggests it offers intelligent leverage to Bitcoin, a viewpoint that MSCI agrees with, concluding that asset leveraging entities should not be included in operating-company indexes. Investors pursuing opportunities in this area would benefit from noting the critical dates of September 30 for the closure of consultations and October 16 for MSCI’s announcement, with the earliest effective changes slated for the November index review.