The financial world is buzzing over a significant proposal from MSCI, a leading global index provider. Their recent consultation on how to classify “digital asset treasury companies” has ignited a fierce debate, drawing in major players like JPMorgan and sparking calls for boycotts. At its core, the issue questions the very nature of these firms: are they genuine operating businesses, or simply investment funds masquerading as corporate entities?
This scrutiny comes at a critical juncture for institutional capital seeking exposure to Bitcoin (BTC). By mid-2025, three primary avenues had emerged: regulated spot ETFs, which boasted over $100 billion in assets, Bitcoin mining operations with inherent BTC exposure, and a newer breed of public companies whose primary strategy involved holding substantial amounts of crypto on their balance sheets. MSCI’s proposal specifically targets this third category, potentially reshaping how traditional finance interacts with the digital asset landscape.
The MSCI Proposal: Reclassifying Digital Asset Treasuries
MSCI’s proposal, initially presented in October, aims to clarify the criteria for inclusion in its Global Investable Market Indexes. It suggests excluding any company whose digital asset holdings constitute more than 50% of its total assets. Furthermore, MSCI invited feedback on whether firms that explicitly identify as digital asset treasuries, or raise capital primarily to acquire Bitcoin, should face similar treatment. This move is framed as standard index maintenance, but its implications are far-reaching.
MSCI’s central question is clear: Do these stocks “exhibit characteristics similar to investment funds,” which are typically excluded from equity benchmarks? The consultation window for this critical decision closed on December 31, with a final determination expected by January 15. If approved, implementation is penciled in for the February 2026 review cycle.
JPMorgan's Forecast and the Public Outcry
The potential fallout from MSCI’s proposal was quickly quantified by JPMorgan. Their November analysis estimated that the market capitalization of prominent digital asset treasuries, with **MicroStrategy (MSTR)** as the prime example, stood at approximately $59 billion. A significant chunk of this, roughly $9 billion, was held by passive investment vehicles tracking major indexes.
JPMorgan’s modeling projected a scenario where MSCI alone reclassifies these companies, forcing passive assets totaling about $2.8 billion to be sold off. If other major index providers, such as Russell and FTSE Russell, were to follow suit, mechanical outflows could skyrocket to an estimated $8.8 billion, according to a Barron’s report. This magnitude of potential sell-off, described as the second major index shock after **MicroStrategy’s** earlier exclusion from the S&P 500, triggered an immediate and vocal backlash. JPMorgan itself faced intense scrutiny, with public calls for a boycott of the bank and even shorting its stock, amid accusations of front-running the market.
The Proxy-Stock Problem: Bridging the Institutional Gap
The anger stemming from MSCI’s proposal highlights a deeper, underlying tension: how traditional portfolios gain exposure to Bitcoin. For institutions operating under mandates that restrict direct cryptocurrency holdings, these digital asset treasury companies offered a crucial workaround. They allowed investors to track BTC’s performance through equity exposure, without breaching compliance regulations. DLA Piper’s October advisory revealed the explosive growth of this sector, noting that over 200 US public companies had adopted digital asset treasury strategies by September 2025, collectively holding an estimated $115 billion in crypto. Their combined equity market cap had surged to around $150 billion, a significant increase from $40 billion just a year prior. Approximately 190 of these firms focused primarily on Bitcoin, with others exploring Solana, Ethereum, and different tokens.
However, this convenient solution came with inherent structural vulnerabilities. Many newer treasuries funded their crypto acquisitions through convertible notes and private placements. When their stock prices dipped below the intrinsic value of the crypto they held, boards faced immense pressure to liquidate digital assets and buy back shares to stabilize their equity. In 2025, digital asset treasuries deployed about $42.7 billion into crypto, with $22.6 billion in the third quarter alone. Solana-focused treasuries, for instance, saw their aggregate net asset value plummet by 40%, from $3.5 billion to $2.1 billion. This drawdown sets the stage for potential forced liquidations, estimated to be between $4.3 billion and $6.4 billion if even a fraction of these positions were to unwind.
A Shifting Landscape: The Rise of Spot ETFs
In stark contrast to the complexities faced by treasury stocks, spot Bitcoin ETFs had already crossed $100 billion in assets under management less than a year after their launch. BlackRock’s IBIT, a prominent example, alone held over $100 billion in BTC, accounting for roughly 6.8% of the circulating supply by late 2025. These products offered a purer form of Bitcoin exposure, free from the balance-sheet leverage or the net asset value (NAV) discount problems that plagued many treasury stocks.
MSCI’s consultation is widely seen as accelerating a rotation that was already underway. Bitcoin exposure is gradually migrating from treasury equities, which become forced sellers when equity valuations falter, into the more robust and regulated ETF wrappers. For Bitcoin itself, this rotation could be neutral or even positive, especially if ETF inflows effectively offset any selling pressure from treasury companies. For the stocks involved, however, it’s unambiguously negative for liquidity. This shift also reinforces Bitcoin’s structural dominance, as the institutional products gaining traction are almost exclusively BTC-only, even as some treasuries had begun experimenting with other tokens.
Liquidity Under Stress and Future Implications
The mechanical flows on the equity side are straightforward: index funds benchmarked to MSCI cannot simply replace a reclassified **MicroStrategy** with a Bitcoin ETF. Instead, they must rotate into whatever fills that index slot. While this isn’t an automatic coin-selling shock from Bitcoin’s direct perspective, the second-order effects are crucial. Treasury companies facing weaker equity support and tighter funding conditions will likely scale back future purchases or, in some cases, be forced to liquidate their crypto holdings to shore up their balance sheets.
**MicroStrategy**, for its part, has signaled that it will not sell BTC to comply with any threshold. Instead, it’s actively reframing itself as a “Bitcoin-backed structured finance company,” doubling down on the assertion that it operates as a business, not merely a fund. Smaller treasuries with less robust balance sheets, however, may not have the luxury to make such a stand, potentially leading to widespread forced sales.
While Russell and FTSE Russell have not yet launched formal consultations on digital asset treasuries, JPMorgan’s $8.8 billion outflow scenario assumes that these major providers will eventually align with MSCI’s approach. FTSE Russell, despite its involvement in digital asset indexing on the token side, currently treats treasuries like any other sector stock in its equity methodology. However, advisories from legal firms like DLA Piper serve as a warning: regulators and gatekeepers, including index providers, are scrutinizing treasury disclosures more closely, which supports the likelihood of a copycat wave of reclassification.
Ultimately, MSCI’s move compels institutions to make a definitive choice: Does Bitcoin belong within traditional equity benchmarks, or should its exposure be confined to dedicated crypto products? The consultation is methodological in nature, but the stakes are structural. It will determine whether BTC beta primarily resides in ETFs and a select few large corporate treasuries, or remains dispersed across a broader ecosystem of smaller balance-sheet holders who risk becoming forced sellers when market conditions inevitably shift. The outcome will reshape not only index weights but also the concentration of Bitcoin ownership itself in the years to come.
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