"MSTR may be removed from the MSCI index" sparks conflict, as "Crypto Xiao Deng" battles "Wall Street Lao Deng" in a dramatic showdown.

"MSTR may be removed from the MSCI index" sparks conflict, as "Crypto Xiao Deng" battles "Wall Street Lao Deng" in a dramatic showdown.

A proposal regarding the possible removal of MicroStrategy (MSTR) from the MSCI index has sparked ideological clashes between cryptocurrency supporters and traditional financial institutions. A storm is brewing between the "crypto community" and "Wall Street."

Recently, index giant MSCI issued a consultation paper suggesting the exclusion of "digital asset treasury companies" from its global investable market indices. According to MSCI's definition, such companies are those whose digital asset holdings exceed 50% of total assets, or those that identify as digital asset treasuries and raise funds primarily to acquire more Bitcoin.

MSCI's document explicitly questions whether these companies "exhibit characteristics similar to investment funds," which are typically excluded from stock benchmark indices. This is the core of the debate: Are these "digital asset treasury companies" truly innovative operating entities, or are they investment funds disguised as corporations?

The move immediately triggered a chain reaction in the market. Wall Street giant JP Morgan released an analysis warning that if MicroStrategy is excluded, its valuation could come under "tremendous pressure." Analysts at the bank noted that, of MicroStrategy's then-$59 billion market cap, about $9 billion was held by passive investment vehicles tracking major indices.

The bank estimates that MSCI alone could trigger forced sales of approximately $2.8 billion by passive funds; if other index providers like Russell follow suit, total sell-offs could reach as much as $8.8 billion.

Another 107-year-old investment bank, TD Cowen, also stated its expectation that MSCI will ultimately exclude all such "digital asset treasury companies" from its indices.

The "crypto circle" strongly resists, even calls to short JP Morgan

MSCI's proposal and JP Morgan's analysis have sparked fierce backlash on social media and in the cryptocurrency community. Some crypto supporters have publicly called to boycott JP Morgan and short its stock. They accuse the bank of possible "front running," i.e., setting up positions ahead of issuing bearish reports to profit from driving prices down.

The crypto community believes "digital asset treasury companies" provide restricted institutional investors a way to track Bitcoin indirectly via stock exposure, and an index removal could weaken this channel. MicroStrategy Executive Chairman Michael Saylor responded that the company is not a fund, trust, or holding company, but an operating enterprise with a $500 million software business, using Bitcoin as "productive capital."

Meanwhile, MicroStrategy's founder firmly defends its business model. This turmoil is not just about one company's fate, but could accelerate a rotation in institutional channels for gaining Bitcoin exposure, moving from proxy stocks to better-regulated spot ETFs.

The index giants’ "housekeeping"

On the surface, MSCI's proposal looks like a routine "index housekeeping." In its October consultation paper, MSCI posed a fundamental question: Do these companies with large digital asset holdings "exhibit characteristics similar to investment funds"?

The background to this is that mainstream stock indices typically exclude investment vehicles such as ETFs, closed-end funds, and trusts, to ensure constituents represent operating companies from the real economy. MSCI is seeking clarity: When a software company's balance sheet is dominated by Bitcoin, has it crossed the line between an operating company and an investment tool?

According to MSCI's timeline, final decisions on related rules will be announced on January 15, 2026, and planned for implementation during the index review in February 2026. This seemingly technical adjustment could have far-reaching effects on an emerging stock category.

A battle of "definitions"

At its core, this event is a deep ideological conflict—how to define these new types of companies. Bloomberg columnist Matt Levine analyzed and summarized two opposing market views.

Proponents for treating them as ordinary stocks argue:

  1. Legally, they are stocks.
  2. Most have other lines of business besides holding cryptocurrency (e.g., MicroStrategy's $500 million software business), so they should be viewed as operating companies in special sectors.
  3. For institutions unable to directly invest in crypto due to compliance restrictions, these stocks provide a legitimate alternative exposure.

The opposing view is more pointed:

  1. They are essentially investment funds, which have always been excluded from major indices like the S&P 500.
  2. The so-called "operating business" is merely window dressing; its share price mainly reflects its crypto asset holdings.
  3. Allowing stock funds to "mix in" crypto assets in this way goes against investors' original intent to buy pure stock exposure.

MicroStrategy co-founder Michael Saylor firmly rejects the "fund" label.

He emphasizes the company is not a fund, trust, or holding company, but a listed company using a unique treasury strategy, treating Bitcoin as productive capital, and changes to index classification will not affect its operating model. He has repositioned the firm as a "Bitcoin-backed structural financial company" to highlight its operating attributes.

Market impact: Rotation from proxy stocks to spot ETFs

Regardless of the ultimate definition, MSCI's move could accelerate an ongoing market trend: institutional capital rotating from "digital asset treasury" (DAT) stocks to spot Bitcoin ETFs.

According to a DLA Piper report, as of September 2025, over 200 U.S.-listed companies have adopted digital asset treasury strategies and hold about $115 billion in crypto. These companies provide traditional financial institutions a convenient workaround. But this convenience comes with structural risks: for example, when the share price falls below the net value of crypto assets held, companies can face pressure to sell assets to buy back stock.

Meanwhile, spot Bitcoin ETFs, in less than a year since launch, have surpassed $100 billion in assets under management. These ETFs offer purer, less leveraged Bitcoin exposure, without the complex balance sheet issues of treasury stocks.

Therefore, MSCI’s proposal is a “clear liquidity-negative event” for these proxy stocks. Once index funds sell MSTR, they won’t shift into Bitcoin ETFs, but will buy other stocks to fill the index slots. Although this doesn’t directly lead to Bitcoin sell-offs, secondary effects shouldn’t be ignored: treasury companies facing share price and financing pressure may have diminished ability to buy Bitcoin in the future, or might be forced to sell part of their holdings.

According to a table compiled by CryptoSlate, besides MicroStrategy, crypto mining firms such as Riot Platforms and Marathon Digital are also on MSCI’s initial watchlist, forming a potential “long tail” liquidity risk. Ultimately, this turbulence will force the market to decide: Should Bitcoin exposure exist within mainstream stock indices, or should it be relegated to dedicated crypto investment products?

Risk disclaimerThe market has risks, and investments should be made cautiously. This article does not constitute individual investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of particular users. Users should consider whether any opinions, views or conclusions in this article are appropriate for their specific circumstances. Investing based on this is at your own risk.