MSCI Wields a "Double-Edged Sword": Retains Crypto Treasury Companies but Suspends Additional Issuance, Ending Infinite Funding Cycles?

The global index giant MSCI announced that in its Q2 2026 quarterly review, it will retain the position of “Digital Asset Treasury Company” in its global indices, sparing Strategy and other companies from being delisted and triggering billions of dollars in passive sell-offs. However, MSCI also imposed a key restriction: freezing the circulating share count of these companies, with future share issuances not being included in index weights.

This decision is like a “double-edged sword”: while removing the “forced sell” sword, it also completely cuts off the “infinite capital cycle” whereby DATCOs automatically acquire index funds through share issuance. The market structure has thus fundamentally changed, forcing crypto companies to return to fundamentals, while US spot Bitcoin ETFs may become silent winners.

A Structural Shift Behind a “Suspension”

For “Digital Asset Treasury Companies” deeply tied to Bitcoin in their corporate strategy, January 6, 2026, marks a dramatic turning point. MSCI Inc., the main provider of global stock and ETF benchmarks, announced that in the upcoming February review, it will maintain the current treatment of DATCOs in its global indices. This means that a group of companies, led by Strategy, which face delisting risk due to their digital assets exceeding 50% of total assets, have received a critical “reprieve.”

Following the announcement, the market reacted immediately with a stock price surge of over 6%. The underlying logic of panic and relief is clear: according to JPMorgan analysis, if fully removed from the index, passive funds could be forced to sell between $3 billion and $9 billion. Such massive selling pressure could destroy stock prices and potentially force companies to liquidate part of their Bitcoin holdings to cope with the crisis. Strategy Chairman Michael Saylor quickly proclaimed this index inclusion as a victory.

However, beneath this superficial victory lie terms that could change the game rules. While granting a “reprieve,” MSCI added a crucial technical freeze: the announcement explicitly states that MSCI will not implement increases in free float, foreign inclusion factors, or domestic inclusion factors for these securities, and will delay any reclassification or scale band changes for all securities on the preliminary list. In other words, the “weight” of DATCOs in the index has been locked. This move, while avoiding the “guillotine,” also abolishes the core “engine” that once drove their expansion—namely, the linkage between new share issuance and automatic passive fund buying.

Operation and End of the “Infinite Capital Cycle”

To understand the profound impact of MSCI’s freeze, one must analyze the unique capital operation model that DATCOs, especially leader Strategy, have relied on in recent years. This model has been called the “infinite capital cycle” or “perpetual motion machine” by market participants, with a highly efficient and intricate logic.

The cycle begins with Strategy’s corporate strategy, which is highly bullish on Bitcoin. When the company decides to increase its Bitcoin holdings, it often raises funds through equity issuance (or convertible bonds). For example, throughout 2025, Strategy raised over $15 billion via new stock issuance to acquire Bitcoin on a large scale. Such issuance typically dilutes existing shareholders and could, in theory, depress the stock price.

The second key component is the passive buying by index funds. As Strategy’s free float increases due to issuance, passive funds tracking MSCI and other major indices—such as ETFs—are mathematically compelled to proportionally increase their holdings in the company to match the index weight. This demand is “price-insensitive”: regardless of short-term stock price movements post-issuance, index funds must buy. This provides a guaranteed, massive buyer support for new share issuance, offsetting dilution effects and even potentially pushing the stock price higher.

The third component forms a closed loop: stable or rising stock prices make subsequent share issuances easier and cheaper, enabling the company to raise more funds with fewer shares to buy more Bitcoin. The growth in Bitcoin holdings further reinforces the “pure Bitcoin play” narrative, attracting more investors and creating a positive feedback loop.

MSCI’s freeze decision precisely cuts off this core gear of the cycle. The announcement means that even if Strategy issues new shares on a large scale in the future, MSCI will ignore the new shares when calculating index weightings. The company’s index weight will not increase, and the hundreds of billions of dollars in passive funds tracking the index have no obligation to buy these new shares. The once-stable, massive, effortless “automatic order” disappears.

From “Auto-Pilot” to “Manual Control”: Comparing Old and New Mechanisms

Before and after MSCI’s rule change, the fundamental support mechanism for DATCOs’ share issuance has reversed.

Under the old mechanism, the core driver was the mathematical adjustment of index weights, which forced passive funds to buy. This demand was price-insensitive and highly certain, guaranteed by strict index rules. As a result, it strongly offset dilution effects and often boosted stock prices. For example, if a company issued $2 billion worth of new stock, the automatic passive fund buying might amount to about $600 million under the old rules.

In contrast, under the new freeze mechanism, everything is different. The primary driver now depends entirely on active investors’ judgment and recognition of the company’s fundamentals and valuation. This demand is highly price-sensitive, with low certainty, heavily influenced by market sentiment and overall liquidity. As a result, support for share issuance becomes weak or may even vanish, increasing the risk of sharp declines during dilution events. Using the same example, a $2 billion issuance under the new rules would see the automatic passive fund support drop to zero, forcing the company to rely solely on its own efforts to find willing active buyers in the open market.

Liquidity Gaps and the Rise of Alternatives

The disappearance of “automatic buying” directly creates a significant market liquidity gap. Crypto research firm Bull Theory attempted to quantify this gap in a client report. They built a hypothetical model: suppose a Digital Asset Treasury Company has 200 million shares outstanding, with about 10% (20 million shares) typically held by passive funds tracking the index. If the company issues 20 million new shares to raise capital, index rebalancing would force passive funds to buy 10% of that, i.e., 2 million shares. At $300 per share, that amounts to $600 million of guaranteed, price-insensitive buying power.

Under MSCI’s new rules, this $600 million “mechanical buy” support is eliminated. The report notes sharply: “Strategy now must seek private buyers, offer discounts, or raise less capital.” For Strategy, which relied on over $15 billion in equity financing in 2025 to aggressively acquire Bitcoin, this is a fundamental challenge. Future financings approaching this scale will occur in markets lacking passive buffer support, greatly increasing the risk of significant stock price corrections during dilution.

This structural change is quietly reshaping the competitive landscape in the digital asset space. MSCI’s choice to “freeze” rather than “delist” or “leave” effectively makes US spot Bitcoin ETFs the silent winners. Over the past year, Bitcoin ETFs have matured into a mainstream asset class, attracting significant institutional interest. From an investor perspective, stocks of companies like Strategy compete with Bitcoin ETFs in providing Bitcoin exposure, but the former also carry operational risks, management premiums, and NAV volatility.

Now, with the diminished capacity of DATCOs for efficient equity financing, large asset allocators may reassess their allocations. Moving funds from single-company stocks with enterprise-specific risks to more straightforward, liquid, transparent spot Bitcoin ETFs becomes a more logical choice. This capital flow benefits major ETF issuers like BlackRock and Fidelity, whose management fees may partly reflect the value previously embedded in DATCOs’ stock premiums. MSCI’s removal of the “flywheel effect” may unintentionally or intentionally create a fairer competitive environment for traditional asset management products.

Industry Future: Returning from “Financial Engineering” to “Value Creation”

MSCI’s decision marks a clear dividing line for Digital Asset Treasury Companies and the broader crypto industry listed companies.

For Strategy and similar firms, future development must undergo profound adjustments. The model of relying on continuous large-scale equity issuance for expansion is no longer sustainable. Management needs to shift focus from sophisticated “financial engineering” to building solid “fundamentals.” This includes, but is not limited to: developing sustainable non-Bitcoin revenue streams, improving corporate governance, providing more transparent financial communication to shareholders, and exploring alternative financing channels such as bonds and bank loans. They must convincingly demonstrate to active fund managers, hedge funds, and retail investors that their value lies in intrinsic worth rather than index arbitrage.

From a macro industry perspective, this change accelerates the professionalization and specialization of crypto investment tools. Spot Bitcoin ETFs, with their compliance, transparency, and efficiency, are consolidating their role as the primary channel for mainstream institutions and retail investors to access Bitcoin exposure. Companies like Strategy may need to shift their narrative from “Bitcoin leverage Beta tools” to “expert Bitcoin asset management firms.” Their value will increasingly depend on active management capabilities (e.g., staking, Layer 2 applications), ecosystem contributions, and technological insights, rather than just the absolute amount of Bitcoin on their balance sheets.

Ultimately, MSCI’s seemingly technical parameter freeze is a profound lesson to the market: sustainable growth in crypto assets and traditional finance must be built on real value creation, not fragile arbitrage cycles. After short-term pain, a healthier, fundamentals-driven market structure may be the necessary baptism for the industry to enter its next mature phase.