Strive challenges MSCI’s proposal to exclude companies whose Bitcoin holdings exceed 50% of total assets

Strive, a structured-finance company listed on Nasdaq and one of the world’s largest public corporate holders of Bitcoin, is fighting MSCI’s proposal to exclude Bitcoin-heavy companies from major global equity benchmarks.

The firm sent a letter this week to Henry Fernandez, MSCI’s CEO, stating that the proposed exclusion would violate the “long-established principle of index neutrality.” Strive said such benchmarks need to be based on the market for digital currency and not contain special rules around considerations when companies hold digital assets.

Strive now has over 7,500 BTC. This makes it one of the largest public companies in the world to hold Bitcoin on its balance sheet. The firm said its heritage provides it with a unique understanding of how Bitcoin-treasury companies operate, and why blanket exclusions would distort markets.

Strive argues the 50% threshold is flawed

Strive’s response emphasized matters of methodology and fairness. The 50% digital-asset threshold is unjustified, overbroad, and unworkable, according to the firm. It argued that the rule does not account for the broad category to which the Bitcoin treasury has become.

Many are also companies that do more than hold Bitcoin. A few run companies with proven businesses in AI-driven data centre infrastructure, structured finance, and more general digital asset financial services. Additionally, others, particularly large miners such as Marathon Digital, Riot Platforms, Hut 8, and CleanSpark, have diversified beyond the mining sector. Today, they lease out surplus power, computing capacity, and data-centre space to cloud and hyperscale customers.

Strive contends that these companies are bigger than their Bitcoin treasuries, and excluding them would result in the elimination of real economic activity from global benchmarks.

The company also identified a technical challenge: accounting standards are vast. Under U.S. GAAP, digital assets must be recorded at fair value every quarter. Under IFRS, which is used by many countries, companies can carry digital assets at their cost.

That means two companies with the same Bitcoin exposure could appear to be assuming different concentrations of the digital asset. Strive cautioned that the rule would lead to disparate and unfair treatment between companies based solely on where they report their financial statements.

Strive presented an alternative that seemed far more sensible. Rather than rewriting broad-index eligibility criteria, MSCI could create add-ons in the form of optional “ex-digital-asset-treasury” index variants. Investors wishing to avoid Bitcoin-treasury companies could then opt for those versions, without compelling everyone else to suffer the same exclusion. MSCI already offers “ex-energy,” “ex-tobacco,” and other screened index versions along these lines.

Index shift threatens billions in market flows

The answer could hinge on how the market perceives the insights gained through their research. If MSCI goes with the 50% rule, the implications could be enormous. Strategy — the world’s largest public holder of Bitcoin — would be excluded from indexes that track trillions of dollars in global assets. Analysts estimate passive outflows of up to $2.8 billion from MSCI-tracked funds alone. Given that other index providers may copy MSCI, the amount could increase to nearly USD 9 billion.

Market observers note that the impact may already be reflected in Strategy’s volatile share price. Some analysts contend that being dropped from an index would not compel the firm to dispose of its Bitcoin. Still, it may reduce passive demand for the cryptocurrency from institutional investors tracking MSCI benchmarks.

Strive has also experienced its own share of volatility since earlier this year, when it debuted its Bitcoin treasury play via a reverse merger adoption. Its stock price soared from about 60 cents to more than $13 after it announced the Strategy, then fell back below $1.

MSCI is expected to publish its decision on January 15, 2021, before the February index review. The result is being closely monitored throughout the cryptocurrency, financial indexing, and institutional investment worlds.

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