Reader Submission: Why Did MSCI Have to Take Action? Strategy Is Shaking the Index System

Morgan Stanley’s MSCI Index is considering removing MicroStrategy due to a conflict with the asset nature inherent to the company. This article is a reader submission by Taylor Chan.

(Background context: MicroStrategy’s Bitcoin reserves hit the brakes? Infinite accumulation turns to cash hoarding—should retail investors run?)

(Additional background: ) MSCI (Morgan Stanley Capital International) is a global provider of “indices and classification standards” for capital markets, responsible for determining which companies can be included in stock indices, thereby influencing the flow of trillions of dollars in passive funds worldwide. Around $16 trillion in global assets track various MSCI indices, with the vast majority of that capital coming from national pension funds, government sovereign wealth funds, university endowments, and large ETF platforms. For these long-term funds, and for MSCI, the credibility and transparency of the index are especially important.

Over the past two years, MicroStrategy has presented an “unprecedented situation for stock indices”; it no longer operates like a tech company growing through products and services, but increasingly resembles a “BTC ETF company.” Its business revenue accounts for only a small portion of its total value, but its market cap has skyrocketed due to massive BTC purchases. According to MicroStrategy’s Q3 2025 10-Q report Consolidated Balance Sheet (10-Q is the quarterly financial report for US-listed companies, regulated by the SEC, highly authoritative and public, released on 2025/10/30), the company’s total assets (Source 1) are approximately $73.619B, of which BTC assets reach $73.206B, accounting for 99.44% of total assets. After deducting deferred tax assets ($5.835B) and other non-operating items, the actual operating assets (cash, accounts receivable, prepayments, fixed assets, etc.) are only about $0.413B, making up just 0.56% of total assets. This means MicroStrategy’s asset structure is almost entirely dominated by BTC, making its economic substance highly similar to a “BTC fund company” rather than a traditional operating enterprise. In other words, MicroStrategy’s stock price rise and fall is no longer determined by its business fundamentals, but by the price of BTC.

This is undoubtedly a warning signal for MSCI’s stock and fund system. If constituent companies in a stock index are no longer “businesses” but become “asset pools,” the definition of the entire index begins to break down. MSCI is truly worried about two things:

(1) ETF and corporate capital-raising mechanisms are fundamentally different

Large ETFs have an almost “infinitely amplifying capital” ability: as long as the market cap rises and the weighting increases, passive capital will automatically flow in. Weighting refers to the proportion of a constituent stock in the index—the higher the weight, the more shares passive funds tracking the index are required to buy, resulting in even greater capital inflows. MicroStrategy’s model: issue bonds → buy BTC → market cap rises → bigger market cap leads to inclusion in more indices → passive funds are forced to buy in → stock price rises again → issue more bonds → buy more BTC. The logic behind this cycle is that after MicroStrategy buys BTC, an increase in BTC’s price directly drives up the company’s total assets, which then boosts its market cap; index inclusion standards include market cap, liquidity, etc. MicroStrategy essentially meets the market cap requirement through BTC accumulation, qualifying it for index inclusion. As a result, its capital scale can grow rapidly without any contribution from its core business, and it could even be pushed into top-tier indices like the SPY as its weighting increases. However, this is quite unfair to other companies that rely on genuine business operations. Notably, MicroStrategy’s success has spurred imitation by others, such as SharpLink Gaming and Bit Digital, which have abandoned their core businesses to buy BTC or other crypto assets to enlarge their market cap. This distorts the stock market, turning what was once a competition among real businesses into a contest of “asset pools disguised as companies.”

Once the market generally imitates MicroStrategy’s model—expanding market cap through asset accumulation rather than operational growth—capital will shift from innovation- and growth-oriented companies to “asset-driven” companies, making it difficult for stock prices to reflect real effort and innovation. In other words, the distortion of capital flows actually harms companies that are solidly doing business in the market. Therefore, not only could companies truly engaged in innovation and operations face financing difficulties and declining market attention, but the fairness and selection mechanism of the entire stock market would be directly distorted, rendering the overall index system chaotic and unpredictable.

(2) Passive funds “forced to buy” stock indices

Passive funds, such as the well-known VOO, do not actively pick stocks; they completely trust and follow the broad market index. This is because index providers (like MSCI) screen out high-risk, highly leveraged assets for them.

However, if companies like MicroStrategy quickly enter mainstream stock indices by issuing large amounts of debt to buy BTC, it effectively forces passive funds to hold a company whose assets are 99% BTC—a leveraged crypto vehicle—without any choice. This risk is directly transferred to ordinary investors: with MicroStrategy’s assets being 99.44% BTC, it’s essentially “MicroStrategy stock = 99.44% BTC + 0.56% tech business.” If BTC falls by 20%, its assets would shrink by nearly 20%, and the stock price would likely plummet in tandem; if a fund like VOO holds a 1% stake in MicroStrategy, that single stock alone could drag down fund returns by 0.2%. Even if investors haven’t bought BTC directly, they would passively bear losses from BTC price swings.

What needs to be clarified here is that some pension funds and institutions allocate BTC spot ETFs entirely on their own initiative; they are willing to bear this type of asset, so such allocations are welcomed by the crypto industry and are normal market behavior fully permitted by MSCI.

But the nature of broad market indices is fundamentally different. The essential difference between a BTC spot ETF and MicroStrategy is that the investment target of a BTC spot ETF is clearly BTC; investors know they are taking on the risk of crypto assets, which is an autonomous decision. In contrast, MicroStrategy bears the label of a tech company as its main business, but its actual assets are primarily BTC, so investors buying its stock may misjudge its business nature, and passive fund inclusion essentially forces investors to assume hidden risks. The purpose of an index is to provide diversification, transparency, and long-term stability, not to include any form of asset pool.

Once a company is rapidly pushed into mainstream stock indices because of massive BTC holdings, it forces huge passive funds and pensions to “passively” bear the volatility of a specific asset with no choice—rather than a self-directed allocation based on investment authorization. This would directly undermine the credibility of the index itself, making it no longer a risk management tool but a source of uncontrollable risk for passive funds. The credibility of the index is the core basis for investors choosing funds, and also the “safety cushion” for passive funds…