Strive Slams MSCI Over Bitcoin Treasury Exclusion Plan

TLDR:

• Strive calls MSCI Bitcoin exclusion plan harmful to passive investors and market innovation
• Bitcoin miners now provide AI infrastructure to Google, Microsoft in multibillion dollar deals
• International accounting rules may let foreign Bitcoin firms avoid MSCI’s 50 percent threshold
• Asset manager proposes custom index variants instead of excluding all Bitcoin treasury companies

Nasdaq-listed asset manager Strive has pushed back against MSCI’s proposal to remove companies holding significant Bitcoin from its global equity indices. The firm sent a formal letter to MSCI Chairman Henry Fernandez outlining concerns about the plan. 

Strive argues the move would harm passive investors and create market distortions. The company holds Bitcoin reserves and operates structured finance products tied to the digital asset.

The 50% MSCI Threshold Faces Criticism

The proposal targets companies where digital assets comprise more than 50 percent of total assets. 

MSCI released a preliminary exclusion list that includes major Bitcoin mining firms and treasury companies. Strategy and Metaplanet appear near the top of the list despite operating structured finance businesses. 

Strive argues these firms produce real goods and services beyond simply holding Bitcoin.

Bitcoin miners like MARA Holdings and Riot Platforms have expanded into AI infrastructure. These companies leverage existing power contracts and data centers to serve tech giants. 

Recent deals with Google, Microsoft and Amazon total nearly $10 billion according to market data. Google has taken equity stakes in some mining partners as part of these agreements.

The exclusion would cut passive investors off from participating in these growth trends. 

Strive notes that traditional financial institutions like JPMorgan Chase and Goldman Sachs now issue Bitcoin-linked structured products. These banks face no index penalties for offering the same instruments that Bitcoin treasury companies provide. 

The uneven treatment creates competitive disadvantages for newer entrants in the space.

Accounting Rules Create Loopholes

Strive identified a major flaw in MSCI’s approach tied to accounting standards. US GAAP requires fair value reporting for digital assets while IFRS allows cost-basis accounting. 

International companies can keep Bitcoin holdings below the 50 percent threshold on paper even as values rise. The rule could inadvertently increase Bitcoin exposure in MSCI’s international indices.

Trump Media avoided the preliminary exclusion list despite substantial digital asset positions. The company holds Bitcoin through derivatives and ETFs rather than spot positions. 

Adding those instruments would push total exposure above 60 percent based on regulatory filings. Strive warns that measuring true digital asset exposure across various instruments will prove difficult.

The asset manager recommends MSCI create custom index variants instead of blanket exclusions. Clients concerned about Bitcoin exposure could opt into benchmarks like MSCI USA ex Digital Asset Treasuries. 

This approach would preserve neutral flagship indices while addressing specific investor preferences. ESG overlays and other screening tools already exist for handling controversial sectors.

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