MSCI Digital Assets Exclusion Plan Sparks Investor Concerns

Investors and analysts are challenging MSCI about digital assets exclusion plans, warning that the proposal could undermine benchmark integrity and trigger unintended market disruption.

MSCI consultation and scope of the proposal

On October 10, 2025, MSCI extended its consultation on excluding companies whose digital asset holdings are 50% or more of total assets from the MSCI Global Investable Market Indexes.

The index provider plans to publish final conclusions by January 15, 2026, with potential implementation during the February 2026 Index Review.

The preliminary review identifies 39 companies that could be affected. Of these, 18 current index constituents would be removed, while 21 non-constituents would be blocked from any future inclusion.

Notable names under review include Strategy, Sharplink Gaming, Riot Platforms, and Marathon Digital Holdings.

Moreover, critics argue that the proposal violates MSCI’s own benchmark principles of representativeness, neutrality, and stability. They say it would force unnecessary index turnover, raise tracking error, and create a discriminatory standard that has not been applied to other asset-heavy sectors.

Composition and geographic distribution of impacted companies

The impacted universe shows a clear regional skew. The USA is home to 24 of the 39 companies, followed by Japan (3), China (3), the United Kingdom (2), Sweden (2), Germany (1), France (1), Singapore (1), and Australia (1). This breakdown highlights the US-centric nature of digital asset treasury strategies.

According to the consultation materials, those digital asset invested companies currently in MSCI indexes face immediate removal and account for roughly 87% of total capital impact.

However, the 21 non-constituent companies would be barred from future inclusion, representing the remaining 13% of capital exposure. That said, this pre-emptive exclusion is viewed by many as particularly controversial.

The combined float-adjusted market capitalization of the 39 companies is estimated at $113B. Strategy alone accounts for 74.5% of that, or $84.1B of $113B, underscoring its outsized role in the segment. US-listed companies collectively represent 92% of capital exposure but only 62% of the company count, which underscores how heavily the proposal would fall on US markets.

Capital concentration and US exposure

The regional concentration is even more pronounced when viewed through the lens of market value. While US companies represent 24 of 39 names, they account for $104B of the total $113B float-adjusted market cap at risk. This equals 92% of capital impact tied to US markets alone.

Furthermore, the consultation highlights how a small number of large issuers drive most of the exposure. Strategy, with its $84.1B float-adjusted capitalization, makes up nearly three-quarters of the total at risk. Any exclusion decision involving this single company could therefore dominate the financial and market consequences of the policy.

Quantifying investor harm and passive fund outflows

The quantified impact analysis relies on a verified preliminary list of the 39 companies and their combined $113B float-adjusted market cap. A JPMorgan assessment estimates that Strategy could see around $2.8B in outflows if it were removed from MSCI benchmarks, with roughly $9 billion of its $50–56 billion market cap held by passive index funds.

Moreover, Strategy represents 74.5% of the total impacted float-adjusted market cap, or $84.1B of $113B. Analysts calculate that potential outflows could reach $11.6B across all affected companies. Based on concentration risk, the consultation notes that if 10–15% of Strategy’s float is held in MSCI-tracking passive funds, then $8–13B could be at risk from this issuer alone.

The geographic exposure figures mirror this concentration. US companies represent $104B of $113B in total float-adjusted market cap, again equal to around 92% of the aggregate. In addition, 18 current constituents with roughly $98B in float-adjusted cap face immediate removal, while 21 non-constituents with $15B in float-adjusted cap would face permanent exclusion from MSCI indexes.

Index turnover costs and tracking error

Critics stress that forced exclusions would drive significant turnover costs for index trackers. Estimated passive assets under management at risk span multiple MSCI index families, with turnover cost assumptions typically ranging from 5–25 basis points, depending on region and liquidity.

For the MSCI USA index, the analysis projects passive AUM at risk of $10,000–$14,000M, with turnover costs of 5–10 bps, implying an estimated impact between $50–$140M. The MSCI ACWI index shows passive AUM at risk of $11,000–$15,000M, with turnover costs of 5–15 bps, leading to an estimated impact of $55–$225M.

Similarly, the MSCI World index could see $10,000–$14,000M of passive AUM affected, with turnover costs of 5–15 bps and an estimated impact of $50–$210M. For MSCI Japan, passive AUM at risk is estimated at $200–$300M, with 8–12 bps in turnover costs, implying $1.6–$3.6M in impact.

European and emerging-markets exposure appears smaller in absolute terms but still material. MSCI Europe could face passive AUM at risk of $30–$50M, with turnover costs of 10–15 bps, resulting in $0.3–$0.75M in estimated costs. For MSCI EM (China), passive AUM at risk is estimated at $40–$60M, with turnover costs of 15–25 bps, implying $0.6–$1.5M in impact.

Across all index families, total passive AUM at risk is projected at $10,000–$15,000M, with turnover costs in a 5–15 bps range. In aggregate, estimated costs could therefore reach between $50–$225M, in addition to heightened tracking error that some estimates place between 15–150 basis points, depending on the scenario.

Methodology challenges and benchmark principles

Opponents of the plan argue that the MSCI exclusion proposal clashes with the benchmark principles endorsed under IOSCO and the EU Benchmarks Regulation (BMR). These frameworks emphasize representativeness, neutrality, and stability as core features of credible benchmarks. However, excluding operating companies based solely on treasury asset composition represents a major departure from that approach.

Importantly, there is no precedent within MSCI’s own GIMI methodology for excluding operating companies because of the type or proportion of assets held on their balance sheets. Moreover, MSCI historically has allowed companies with highly concentrated asset profiles to remain in flagship benchmarks, provided they meet standard size, liquidity, and governance screens.

The analysis also notes that pre-emptively blocking 21 non-constituent companies from ever entering MSCI indexes, regardless of future growth or liquidity, is without precedent. This form of preemptive index exclusion is regarded as inconsistent with the stated objective of capturing the investable equity opportunity set, and it may raise regulatory questions around neutrality.

Precedent analysis: treatment of fund-like entities

One of MSCI’s apparent justifications is to treat some of these issuers as if they were investment funds. Critics say this is a category error. These companies are operating businesses that use a digital asset treasury strategy, rather than passive investment funds whose sole purpose is portfolio management.

Historically, MSCI has clearly distinguished between operating companies and regulated investment vehicles. Registered Investment Companies (RICs) are excluded based on their regulatory classification, not because of the mix of assets they hold. By contrast, operating issuers with concentrated asset bases have generally remained eligible for index inclusion.

Examples cited include REITs, which by design maintain at least 75% of their assets in real estate, as well as Berkshire Hathaway, which holds a large, diversified investment portfolio, and mining companies where gold or other reserves dominate the balance sheet. Moreover, all these companies have historically been included in MSCI indexes despite high asset concentration, indicating that treasury composition alone has not been grounds for exclusion.

Constituent vs non-constituent treatment

To reduce disruption, some market participants propose a more measured approach. Rather than forcing mass deletions, MSCI could allow current constituents to remain while applying the 50% digital asset threshold only to new index additions. That said, this would address perceived concerns without triggering immediate, large-scale selling pressure.

Such a staggered rule would preserve the representativeness and continuity of major benchmarks while giving asset managers discretion over their exposure. Moreover, it would avoid transforming what is framed as a risk-management measure into what many view as a de facto policy choice against a specific form of corporate treasury management.

Legal, regulatory and benchmark compliance risks

The legal and regulatory analysis, as summarized in the consultation response, points to potential compliance risks if the proposal is implemented as drafted. Under IOSCO’s Principles for Financial Benchmarks and the EU BMR, benchmark administrators are expected to avoid undue discretion and ensure that methodologies remain transparent, objective, and consistently applied.

However, excluding only companies with high digital asset holdings, while continuing to include those with concentrated exposure to real estate, commodities, or financial instruments, could be viewed as discriminatory. The concern is that such a rule might target a particular asset class without a clear, risk-based justification that is consistently applied across comparable categories.

Furthermore, investors warn that these changes would introduce operational complexity for index-tracking funds, which would need to manage forced selling, corporate actions, and ongoing rule interpretation. Combined with higher index turnover costs and tracking error, asset managers fear that end-clients could ultimately bear higher fees and increased deviation from benchmark performance.

Alternative approaches to address digital asset exposure

Critics emphasize that MSCI has several alternatives that would mitigate perceived risks from digital asset exposure without resorting to blanket exclusions. One option is enhanced disclosure. MSCI could flag companies whose digital asset holdings exceed a 50% threshold in index fact sheets, empowering asset managers to decide whether and how to adjust their exposure.

Another proposal is to create a separate classification for these issuers, such as a “Digital Asset Treasury” sub-sector within Financials. This would group digital asset treasury companies together without eliminating them from the investable universe. Moreover, some analysts suggest using tighter liquidity-based screens, such as heightened ATVR thresholds, to manage trading risk while preserving neutrality on asset composition.

A further alternative is a gradual phase-down model. Under this approach, MSCI could apply a Limited Investability Factor (LIF) to reduce the index weight of companies with very high digital asset treasuries over time, instead of imposing full exclusion. This would allow markets to adjust more smoothly and reduce the risk of abrupt passive fund outflows.

Collectively, these options demonstrate that enhanced disclosure, liquidity-based criteria, and sectoral classification tools can address concerns about concentration and volatility. Importantly, they do so without creating a permanent barrier for companies that might otherwise qualify for index inclusion based on size and liquidity.

Timeline and supporting analysis

The consultation follows a defined timeline. The process formally opened on October 10, 2025, with an updated preliminary list of affected companies published on October 29, 2025. The consultation window closes on December 31, 2025, and MSCI plans to announce its decision on January 15, 2026, ahead of potential implementation in February 2026.

The critique of the proposal draws on multiple primary sources, including MSCI’s own consultation announcements and GIMI methodology documents, IOSCO‘s Principles for Financial Benchmarks, the EU Benchmarks Regulation, and JPMorgan analyst research on exclusion risk and passive fund outflows. Press coverage from November 2025 also highlights growing concerns among asset managers, particularly around index turnover costs and market impact.

Supporters of a more neutral approach argue that solutions such as enhanced disclosure, liquidity-based screening, and sub-sector classification would preserve investor choice and better align with representativeness benchmark principles. As the consultation deadline approaches, market participants continue to urge MSCI to reconsider and withdraw the current digital asset exclusion proposal in favor of less disruptive alternatives.

In summary, the proposed exclusions could remove 18 current constituents, permanently bar 21 additional companies, and affect an estimated $10–15B in passive assets, while raising legal, operational, and benchmark integrity concerns across global equity markets.