MSCI Proposes Excluding DATs from Global Indexes
MSCI announced yesterday that it is conducting a consultation on a proposal to classify non-operating companies as ineligible for inclusion in the MSCI Global Investable Market Indexes. If approved, the proposal would likely exclude DATs from the indices.
MSCI announced a similar consultation in October, but ultimately decided not to make any changes when that process concluded in January. This proposal appears more refined, with a clearly defined exclusion framework. The initial screen would filter for companies whose operating assets represent less than 50% of total assets. Each company would then undergo a more granular assessment based on operating asset intensity, expense intensity, cash flow profile, fair value intensity, and capital dependence.
There is little ambiguity over whether MSTR would pass this screen, as the consultation materials explicitly cite MSTR as a company that would be excluded under the proposed criteria.
My interpretation is that MSCI received sufficient feedback during the initial consultation to warrant the development of a more objective framework. Rather than excluding DATs outright, the revised proposal establishes a broader set of criteria that would capture companies with limited operating businesses. This would include DATs, but would also apply to other structures, such as publicly traded vehicles that own physical commodities.
I am inclined to think that the proposal will be approved and that DATs will be removed from the indices. From a timing perspective, MSCI will receive feedback through the end of September and announce the results by October 16th, with implementation expected in November.
The key takeaway is that this would be net-negative for MSTR common stock, as its removal from MSCI indices would trigger outflows from ETFs and other passive vehicles that track those benchmarks. In practice, however, much of that selling is likely to be front-run ahead of the formal announcement and implementation. MSTR is already trading around 1x mNAV, so the ultimate impact on the common stock may be somewhat muted. The more meaningful risk is that these outflows occur while Strategy is attempting to restore STRC to par through capital raises and STRC repurchases.
Common stock was already unlikely to be a reliable funding source for the company while trading only approximately 4% above NAV. This increases the likelihood that BTC becomes the preferred funding source if Strategy remains committed to its stated objective of restoring confidence in STRC and decides to repurchase STRC in size. In that scenario, the MSCI decision could widen the path toward additional BTC sales. As discussed yesterday, STRC is the chart to watch to gauge the risk of additional BTC sales by MSTR.
Data Center Audit Creates New Uncertainty for Miners
Yesterday, I argued that the broader AI infrastructure setup was becoming incrementally more constructive. While I still believe that to be true, one development after yesterday’s close explains why the mining cohort failed to participate in today’s rally across semiconductors, hyperscalers, and much of the broader AI ecosystem.
Texas Governor Greg Abbott announced a statewide review of large data center projects, requiring developers to provide additional information regarding financing, power sourcing, and grid impacts before certain projects move forward. At this stage, I view this more as a yellow flag than a red flag. The announcement appears primarily aimed at gathering information rather than halting development altogether.
That said, timing matters. Several miners within our Crypto Equities Portfolio, particularly CIFR, HUT, and to a lesser extent CLSK, have significant development pipelines concentrated in Texas. Until investors receive more clarity around approval timelines, I think it is reasonable to expect some valuation discount for projects that remain dependent on future ERCOT approvals.
For now, I would avoid overreacting. However, I do think it makes sense to be somewhat more patient with Texas-heavy names until the market has a better understanding of both the scope and timeline of the state’s review process.
Clarity Vote Appears Increasingly Likely Next Week
Attention now turns back to Washington. Based on reporting from Capitol Hill, it increasingly appears Senate leadership intends to proceed with a cloture vote early next week regardless of whether additional progress is made on the revised ethics language.
Absent a constructive update from the White House, I think the base case should be that the legislation fails to advance. However, I also think investors should recognize that expectations have reset dramatically over the past several weeks. Prediction markets now imply only roughly 23% odds of passage this year, and conversations with market participants suggest positioning has become similarly pessimistic.
That creates a more asymmetric setup than existed a month ago. If the legislation ultimately fails to advance next week, I suspect downside in crypto is likely to be relatively contained, perhaps on the order of 5-10% absent a simultaneous deterioration in the macro backdrop. Conversely, any meaningful progress on the ethics negotiations would likely represent a genuine surprise to markets.
Macro Quietly Continues Moving in the Right Direction
Outside of crypto-specific developments, the broader macro backdrop has improved modestly over the past several days. Long-end Treasury yields have eased, inflation expectations continue moving lower, and markets have become somewhat more constructive on the geopolitical outlook.
Importantly, technology equities have responded accordingly. Crypto has largely failed to participate in that recovery, but I think it is worth thinking about names that should participate in a continued “tech-stock outperformance” regime.
Hyperliquid seems like the logical choice here. As we’ve discussed previously, a growing share of activity on the platform now comes from equities and commodity perpetuals through HIP-3 markets. If technology stocks continue extending their recovery, I would expect trading activity on those markets to increase as well, providing a constructive backdrop for HYPE over time. I suspect the token may still consolidate in the near term, but I continue to like it as a higher-beta expression of improving sentiment across technology within the token market.
Tickers in this video: BTC 0.14% HYPE -3.65% MSTR STRC CIFR HUT CLSK
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