Today, Bitcoin For Corporations (BFC), together with its member firms and other public organisations that might be affected, publicly contested MSCI’s decision to leave out more than half of its digital assets in its consultation on “Digital Asset Treasury Companies” (DAT).
MSCI would not include a company in the MSCI Global Investable Market Indexes (GIMI) if its main business is managing digital assets, which make up 50% or more of its total assets. BFC and its member companies ask MSCI to suspend working on the planned criteria and instead find a way to classify companies that are impartial and based on how they do business.
MSCI has always defined firms by what they do, not by what they hold. This method gives up on the idea of putting organisations into groups based on what they do and instead focusses on a certain sort of asset. The companies that are members of our group are genuine businesses with employees, customers, and money coming in. That shouldn’t change because the treasury made a choice with the shareholders’ consent. – George Mekhail, the CEO of Bitcoin For Corporations
The BFC-led campaign unites corporate treasurers, public business leaders, and shareholders of enterprises directly impacted by the plan. Many of these businesses have operations that make money and hold Bitcoin as part of their long-term treasury plan.
Three problems with the proposal’s structure
BFC and its member firms officially told MSCI’s Index Policy Committee about three key structural problems that make it hard to classify companies and construct indexes.
1. Changing the meaning of “primary business” such that it doesn’t cover operations
According to a long-standing rule, a company’s main business is its operations, which are the things it does to make money and profits. MSCI’s idea is different because it lets one thing on the balance sheet be more important than what is truly going on in the firm.
This would mean that the market value of digital assets would be more important than the worth of people, products, customers, and profits. Because of how the treasury operates, businesses could be seen as fund-like organisations, even if their business plans haven’t changed.
2. Choosing one type of asset class to work on
This advice only applies to digital items. If a company has more than 50% of its assets in cash, real estate, commodities, stocks, or goodwill, it doesn’t have to worry about reclassification risk.
The proposal provides a clear non-neutral criteria by using a specified exclusion criterion for one type of asset. This means that all but one of the treasury assets are acceptable.
3. Making it impossible to guess and change what the index is made of
The ≥50% requirement is based on the market price of an item that changes a lot, which indicates that being a member of the index would be by design unstable. If the price of Bitcoin changes, a company could swing from being included to not being included, even if its operations, finance structure, or business model don’t change.
This means that index-tracking funds have to buy and sell stocks more often, which raises costs, adds extra trading activity, and makes the index less useful as a reliable market benchmark. It also puts public companies at risk of mechanical occurrences that add or remove them from the market, which have nothing to do with how well the business is doing.
A direct impact on public firms
These structural issues will have major implications for listed companies in the long run. For example, they could lead to fake categories that have nothing to do with business operations or passive fund outflows triggered by the way index rules work instead of by fundamentals.
– Higher costs of capital because benchmarks are not included Higher volatility because of price signals from outside sources instead of how well the company is doing; fundamental changes to treasury practices approved by shareholders
BFC and its member firms contend that the difference between operating companies and investment funds should be based on their legal standing and how they are regulated, not the mix of assets on their balance sheets. The coalition contends that if MSCI wishes to amend the definition of “primary business,” it should apply to all types of assets, not only digital ones.