*

MSCI ( MSCI ) to decide by Jan. 15 on excluding digital asset

companies

from indexes

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Analysts expect other providers to follow suit, dealing

blow to

bitcoin-hoarding sector

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Crypto-buyers had soared in value, but bitcoin plunge has

hit

some hard

By Elizabeth Howcroft

PARIS, Dec 19 (Reuters) - Michael Saylor's Strategy

could soon be dropped from MSCI ( MSCI ) and potentially other

major stock indexes, which analysts say could cost the

bitcoin-hoarding giant up to $9 billion in demand for its shares

and hurt the wider appeal of the sector.

After queries from clients, MSCI ( MSCI ) in October ‌proposed

ditching from its global benchmarks companies whose digital

asset holdings represent 50% or more of their total assets. It

says they resemble investment funds, which it does not include

in its benchmarks. But many such ​firms argue that they are

operational companies developing novel products, and that MSCI's ( MSCI )

proposals unfairly discriminate against crypto.

Shares in Strategy, which began life as ‍software firm

MicroStrategy, skyrocketed 3,000% after it began buying bitcoin

in 2020, although they have since fallen sharply, and ⁠are

down about 43% this year amid ⁠the cryptocurrency's slump.

Dozens more companies have been inspired to buy and hold crypto

tokens on their own balance sheets in the hopes they will gain

value, although questions are growing over the ‌sustainability of

these businesses.

MSCI ( MSCI ) is holding a public consultation and will announce a

decision by ​January 15. Analysts say that if it excludes digital

asset treasury (DAT) companies, other index providers could

follow.

"The conversation already extends beyond just MSCI ( MSCI )... to the

eligibility of DATs in equity indexes in general," Kaasha Saini,

head of index strategy at Jefferies, told ⁠Reuters, adding that

she expects most equity indexes would move to follow ‍MSCI.

STRATEGY: EXCLUSION COULD "CHILL" INDUSTRY

Passive ​asset managers are estimated to hold as much as 30%

of a large-cap company's free float, according to Saini, meaning

exclusion could trigger significant outflows. That's especially

problematic for the DAT industry, since many companies fund

their token purchases by selling stock.

A spokesperson for Strategy, ‍which has increasingly taken on

debt to fund its token purchases, did not respond to a request

for comment. Saylor this month dismissed worries over potential

MSCI ( MSCI ) exclusion, telling Reuters it wouldn't matter.

But in a subsequent public letter to MSCI ( MSCI ), he and Strategy

CEO Phong Le estimated DAT exclusion would result in $2.8

billion of its stock being liquidated and "chill" the industry.

The proposal would shut DATs out of the roughly $15 trillion

passive-investment universe, "drastically weakening their

competitive position", they wrote.

Analysts at TD Cowen estimated in November that $2.5 billion of

Strategy's market value comes from MSCI ( MSCI ), and $5.5 billion from

other indexes. JPMorgan estimated that Strategy faces $2.8

billion ​of outflows if ‍MSCI kicks the company out, rising to

$8.8 billion if it is excluded from other indexes, which include

the Nasdaq 100, CRSP US Total Market Index and various

LSEG-owned Russell indexes.

Strategy had a market value of around $45 billion on

Thursday.

CRSP declined to comment. A spokesperson ​for LSEG said it

continuously monitors client feedback and any methodology

consultations would follow its governance processes.

Nasdaq declined to comment. It kept Strategy in its Nasdaq 100

index during this month's annual reshuffle.

TREASURY COMPANY CRAZE

As of September, at least 200 DATs had a combined capitalisation

of around $150 billion, up more than threefold from a year

earlier, according to law firm DLA Piper. As crypto prices have

dropped, however, some companies have traded below the net asset

value of their tokens.

Besides Strategy, MSCI's ( MSCI ) preliminary list names 38 companies

at risk of exclusion, with a combined issuer market cap of $46.7

billion as of September 30, including French bitcoin-buying

company Capital B.

Alexandre Laizet, Capital B's director of bitcoin strategy,

said ​the quantity of its shares held by passive funds was "not

that significant now" but in terms of future adoption, it was

"quite important" for the company to have access to passive

flows.

Matt Cole, CEO of U.S. bitcoin-buyer Strive, which

is not on the list, said the proposals have mostly been priced

in by the market.

"On a longer-term basis, I think it raises the cost ‍of

capital for all bitcoin treasury companies," Cole said.