Strategy’s Bitcoin funding model disrupted by MSCI changes

The threat of a massive forced sell-off in crypto-linked equities has been averted.

However, that reprieve comes with a structural catch that fundamentally alters the economics of the “Bitcoin Treasury” trade.

On Jan. 6, the dominant benchmark provider for global equity and ETF markets, MSCI Inc., announced it will retain “Digital Asset Treasury Companies” (DATCOs) in its global indices for the February 2026 review, sparing firms like Strategy (formerly MicroStrategy) from expulsion.

It stated:

Following the news, Michael Saylor, Strategy’s executive chairman, touted the victory of remaining in the benchmark.

However, the index provider has simultaneously introduced a technical freeze on share counts for these entities. It explained:

Through this decision, MSCI has effectively severed the link between new equity issuance and automatic passive buying.

This move simply meant the “downside” of a forced liquidation has been removed, but the “upside” mechanics of the index trade have been dismantled

The end of the mechanical bid

The immediate market reaction, a surge of over 6% in Strategy’s stock, reflected relief that a catastrophic liquidity event was off the table.

Notably, JPMorgan suggested that a full exclusion could have triggered between $3 billion and $9 billion in passive selling of MSTR.

This volume would likely have crushed the stock price and forced the liquidation of Bitcoin holdings.

However, the removed threat of exclusion masks a new reality where the automatic demand lever for the stocks is gone.

Historically, when Strategy issued new shares to fund Bitcoin acquisitions, the index provider would eventually update the share count.

As a result, passive funds tracking the index were then mathematically compelled to buy a pro rata portion of the new issuance to minimize tracking error. This created a guaranteed, price-insensitive source of demand that helped absorb dilution.

Under the new “freeze” policy, this loop is broken. Even if Strategy significantly expands its float to raise capital, MSCI will effectively ignore those new shares for index calculation purposes.

The company’s weight in the index will not increase, and consequently, ETFs and index funds will not be forced to buy the new paper.

Market analysts note that this shift forces a return to fundamentals. Without the backstop of benchmark-tracking demand, Strategy and its peers must now rely on active managers, hedge funds, and retail investors to absorb new supply.

Quantifying the liquidity gap

To understand the magnitude of this shift, market researchers are modeling the “lost bid” that issuers must now navigate.

Bull Theory, a crypto research firm, quantified this liquidity gap in a note to clients. The firm posited a hypothetical scenario involving a treasury company with 200 million outstanding shares, of which roughly 10% are typically held by passive index trackers.

In the Bull Theory model, if that company issues 20 million new shares to raise capital, the old index mechanics would eventually mandate that passive funds purchase 2 million of those shares.

At a theoretical price point of $300 per share, that represents $600 million of automatic, price-insensitive buying pressure.

Under MSCI’s new freeze, Bull Theory noted that the $600 million bid falls to zero.

Considering this, it stated:

This means that the forced demand from index funds has been eliminated.

Thus, it presents a significant hurdle for Strategy, which issued more than $15 billion in new shares throughout 2025 to aggressively accumulate Bitcoin.

If the company attempts to replicate that scale of issuance in 2026, it will do so in a market void of passive support. Without that structural bid, the risk of a price correction during dilution events increases significantly.

ETFs emerge as silent winners

MSCI’s decision to cap these companies rather than expel them or leave them alone has also significantly altered the competitive dynamics in the asset management sector.

Over the past year, US spot Bitcoin ETFs have matured as an asset class and have seen significant institutional interest. In fact, this rise led MSCI’s former parent company, Morgan Stanley, to file for its own Spot Bitcoin ETF.

From this vantage point, Strategy competes with these fee-bearing Bitcoin ETFs, offering investors a way to gain passive Bitcoin exposure through an operating company structure. By freezing the index weighting of DATCOs, the new rule degrades their ability to efficiently scale via equity markets.

If Strategy’s ability to raise cheap capital is curtailed, large allocators may rotate capital out of the corporate equity and into Spot ETFs, which do not carry the operational risks of a company or the premium-to-NAV volatility.

This flow of funds would directly benefit issuers of spot ETFs, including major Wall Street banks, effectively capturing the fees previously reflected in equity premiums.

By neutering the “flywheel” effect of the treasury strategy, the index provider may have inadvertently, or intentionally, leveled the playing field in favor of traditional asset management products.