MSCI Reconsiders Crypto Asset Accumulation Companies for Global Index Exclusion

In a significant move for the cryptocurrency sector, MSCI has announced its intention to alter its methodology for including companies in its Global Investable Market Indexes (GIMI). This change primarily targets firms that focus on accumulating investment assets rather than engaging in operational business activities. The proposal could lead to the exclusion of certain companies like Strategy, Metaplanet, and others from these prominent indices.

The Consultation Process and Timeline

The financial community has been invited to provide feedback on these proposed changes until September 30. Following this consultation period, MSCI plans to announce the outcomes by October 16. If approved, these modifications could be implemented during the index review in November.

Potential Impact on Companies

Three companies—Strategy, Yellow Cake, and Metaplanet—are at risk of being excluded from the MSCI ACWI IMI index. Meanwhile, Center Laboratories, Lydia Holding, and SharpLink may be added to a new public watchlist. This move indicates a shift in how MSCI evaluates non-operating entities within its indexes.

The Proposed Methodology Explained

MSCI’s proposed methodology involves a two-step screening process. Initially, companies must pass a Core Screen requiring that operational assets constitute more than 50% of total assets. If they fail this requirement, an Exclusion Screen with five financial indicators is applied. A company will be deemed unsuitable for inclusion if it meets at least four of these five criteria:
– Operational assets are less than 20% of total assets.
– Operating expenses are below 5% of assets.
– The operating cash flow is negative.
– Non-operational changes in fair value exceed established thresholds.
– The company heavily relies on capital raising for asset accumulation.
The last criterion is particularly relevant for firms using capital raising to purchase crypto-assets.

Broader Implications on Passive Investment Flows

JPMorgan has estimated that excluding Strategy alone could result in an outflow of up to $8.8 billion. Supporters of digital asset treasury (DAT) warn that broader exclusions might lead to potential outflows ranging from $10 billion to $15 billion.
These developments underscore MSCI’s ongoing efforts to refine its approach toward non-operating companies involved in cryptocurrency investments. While no final decision has been reached yet, the implications are significant for both the companies involved and passive investment flows into their stocks.
As industry stakeholders await further announcements post-consultation period ending September 30th; market participants should remain attentive as these regulatory adjustments unfold — potentially reshaping how crypto-assets align with global financial indices moving forward.