MSCI delays index exclusion…MicroStrategy investors 'relieved'

Bitcoin down 60% in six months↓

MSCI "May reconsider exclusion"

Morgan Stanley Capital International (MSCI), the world's No.1 index compiler, has decided to continue including MicroStrategy and other crypto asset investment firms in its major indices.

On the 6th (local time), MSCI announced it will maintain the current index inclusion criteria for so-called "digital asset treasury" (DAT) companies. A month earlier, MSCI warned that it could change the inclusion criteria starting with the February rebalancing and exclude DAT companies from major indices.

DAT refers to listed companies that have a business structure similar to funds that invest in crypto assets, including Bitcoin. They drew attention during crypto rallies with the so-called "flywheel strategy" of continuously issuing new shares and corporate bonds to purchase crypto assets. Concerns have also been consistently raised about the sustainability of the DAT business model, which issues large amounts of new shares almost daily.

MSCI left open the possibility that it could reconsider excluding DATs at some point. In materials, they said, "We have taken into account investors' concerns that DATs and other non-operating companies have the nature of investment funds (and are not eligible for index inclusion)," and added, "We will gather broader opinions on how to classify and handle them in indices."

DAT companies, which would face massive capital outflows if exclusion were confirmed, welcomed the decision to maintain inclusion. Michael Saylor, the originator of the flywheel strategy and CEO of MicroStrategy, said on his social media, "Maintaining inclusion is a great outcome for neutral index calculation and economic reality." JPMorgan warned last year that if index providers including MSCI simultaneously excluded MicroStrategy, up to $8.8 billion could flow out.

Share prices of DAT companies including MicroStrategy have been adjusted more sharply than crypto asset price declines since the second half of last year. As of the close on the 6th, MicroStrategy's return over the past six months was -60.08%. Bitmain, the largest investor in the Ethereum sector, fell nearly 70% during the same period. The two companies are the 14th (Bitmain) and 20th (MicroStrategy) most held single stocks by Korean investors in overseas stocks. According to the Korea Securities Depository, domestic investors' holdings of the two stocks amount to USD 1,755,720,000 (about KRW 2.5421 trillion).

Reporter Beomjin Jeon forward@hankyung.com