MSCI's New Rules Could Kick Strategy and Other Crypto Hoarders Out of Its Indexes

MSCI just drew a line

Companies like Strategy have leaned on a simple pitch: we're a public company, so our stock gives you crypto exposure in a wrapper your index fund can already own. MSCI is one of the biggest index makers in the world, and it has now finalized rules that put that pitch in question.

The new 'non-operating company' rules could exclude crypto treasury firms from MSCI's indexes, according to The Block. It names Strategy and Metaplanet, both bitcoin holders, and SharpLink as at risk. MSCI's final list of affected firms is due Nov. 11.

Why it's interesting: index membership isn't a vanity badge. It decides who is required to own your stock. If MSCI treats a company that mostly sits on crypto as 'non-operating,' it goes after one of the main sources of demand these stocks rely on.

Capital B's revenue rose 3.5% to €5.8 million. Its bitcoin write-down alone came to €67.5 million. The business is tiny next to the bitcoin, and that's exactly the profile a 'non-operating' label seems built for.

How much selling are we talking about?

The honest answer is that the reporting so far doesn't put a number on it. If you see a figure floating around, check it against MSCI's actual list once it's out.

The mechanism is still worth understanding. Passive funds are the index trackers that sit in a lot of retirement accounts, and they don't make judgment calls. When a stock leaves the index, the fund sells it, more or less regardless of price. That selling comes from holders who never cared about the company's story in the first place.

What that means for you depends on what you own. If you hold Strategy or a similar stock directly, a removal could bring a wave of selling that has nothing to do with crypto prices. If you hold a broad MSCI-tracking fund, you may have quietly owned a small slice of these companies, and that slice could disappear without you doing anything.

The real threat is to the money machine

The bigger risk isn't one bad day of selling. It's the funding model.

When one of these stocks trades at a 'premium to NAV,' meaning the shares are worth more than the crypto the company holds (NAV is net asset value), the company can do something useful. It issues new shares, uses the cash to buy more coins, and ends up with more crypto per share than before. Capital B tracks this as 'BTC yield.' That's the percentage change in bitcoin held per fully diluted share, a share count that includes stock that could still be created from things like options. Capital B reported 2.2% for the first nine months of the year.

The loop only works if people keep wanting the stock, and index funds are a built-in source of buyers. Take them away and the premium has less holding it up. Once the premium disappears, issuing stock to buy crypto stops making sense, because you'd be selling shares for less than the coins behind them. The flywheel slows.

What to watch: whether these stocks drift toward the value of their crypto as Nov. 11 approaches. If the premium narrows, the market is pricing in a weaker funding engine before MSCI publishes a single name.

Stress in one corner, buying in another

Capital B, formerly The Blockchain Group, shows what these balance sheets look like up close. It isn't one of the names reported as at risk. The French firm posted a first-half net loss of €69.5 million ($78.1 million), up from €1.9 million a year earlier. About €67.5 million ($75.9 million) of that was a bitcoin impairment charge. That's an accounting write-down based on bitcoin's June 30 price, and the company said it had no cash impact. Revenue rose 3.5% to €5.8 million.

Put those two numbers side by side and the actual business is tiny next to the bitcoin swings. That's the kind of profile a 'non-operating' label appears to be aimed at.

Capital B is still buying anyway. It held 3,538 BTC as of Sept. 30, up from 2,823 in January, at an average cost of about €87,805 ($98,768) per coin. Bitcoin was recently trading around $81,500, so the company is sitting below its average purchase price. It raised €27.5 million in the first half and another €31.7 million from July through mid-October. Its recent raises included investments from Blockstream CEO Adam Back.

Then there's Strive, which plans fresh funding to buy more bitcoin. TD Cowen raised its price target 27% and said it sees pressure on the stock from warrants easing. Warrants are rights to buy new shares at a set price, and they can weigh on a stock as they're exercised.

The takeaway is that these companies aren't all being judged the same way. Despite the index cloud, at least some can still raise money and win analyst upgrades. The ones that can keep funding themselves are better placed if the premium gets squeezed.

What to watch between now and Nov. 11

First, the list itself. Strategy, Metaplanet and SharpLink are named as at risk, but at risk isn't removed. Who actually gets cut, and when any deletion takes effect, will decide how much forced selling shows up and on what date.

Second, capital raises. If these companies rush to sell stock before the list lands, read it as management cashing in the premium while it lasts. If raises dry up, that tells you something too.

Third, whether other index providers follow. There's no reporting that any of them plan to. Still, once a major index decides crypto-holding companies aren't operating businesses, the idea is out there. If you bought these stocks as a backdoor crypto ETF, the door may be getting narrower.