Bitcoin firm Fold Holdings gains Russell 2000 approval amid exclusion tensions

While the MSCI is proposing excluding digital asset treasury companies with over 50% crypto holdings from its indexes, Fold Holdings has made sort of an uphill climb by announcing that it will be included in the Russell 2000 Index. 

Fold Holdings, a Bitcoin financial services firm, has announced that it will be included in the Russell 2000 Index despite the MSCI considering the exclusion  of digital asset treasuries from its indexes.

Has Fold Holdings been included in the Russell 2000 Index?

Fold Holdings announced its inclusion in the Russell 2000 Index on December 22. The Russell 2000 tracks small-cap U.S. stocks, representing approximately 5-7% of the U.S. public equity market capitalization, and serves as a benchmark for mutual funds, ETFs, and other asset managers.

Will Reeves, Fold’s Chairman and CEO, said the inclusion validates the company’s position as a successful public company. He expects the listing to broaden market awareness and increase visibility among institutional and retail investors.

Fold operates as a Bitcoin financial services firm focused on making it easy for individuals to earn, save, and spend Bitcoin through everyday financial tools, including its Bitcoin Gift Card and upcoming Fold Bitcoin Rewards Credit Card.

Will Bitcoin-holding firms be excluded from indexes?

MSCI, a major index provider, proposed in October to remove companies whose digital asset holdings represent 50% or more of their total assets from its global benchmarks. The firm argues these companies are more similar to investment funds rather than operational businesses, which MSCI does not include in its indexes.

Strategy, formerly known as MicroStrategy and led by Bitcoin advocate Michael Saylor, saw its shares surge 3,000% after it began purchasing Bitcoin in 2020.

Analysts estimate that exclusion from MSCI could trigger $2.8 billion in outflows. And that figure could rise to $8.8 billion if other indexes follow suit. JPMorgan’s analysis suggests Strategy has $2.5 billion of market value from MSCI membership and $5.5 billion from other indexes, making up a significant portion of the company’s $45 billion market value.

Michael Saylor initially dismissed concerns about MSCI exclusion, but later, through a public letter co-authored by Strategy’s CEO Phong Le, the pair warned that digital asset treasury exclusion would result in $2.8 billion of stock liquidation and “chill” the industry.

The executives argued the proposal would deprive these companies of about $15 trillion in passive investments.

Why is MSCI’s decision on digital asset treasuries important?

MSCI’s consultation period runs until January 15, 2025, when a final decision will be announced. According to Kaasha Saini, head of index strategy at Jefferies, the eligibility of digital asset treasury companies in equity indexes generally will be affected by this decision. She expects most equity indexes would move to follow MSCI’s lead if exclusion occurs.

Saini pointed out that passive asset managers hold an estimated 30% of a large-cap company’s free float, which creates a significant problem for digital asset treasury companies, as many of them fund their token purchases by selling stock.

As of September, at least 200 digital asset treasury companies had a combined market capitalization of around $150 billion, more than triple the figure from a year earlier, according to law firm DLA Piper.

MSCI’s preliminary list names 38 companies at risk of exclusion, with a combined issuer market cap of $46.7 billion as of September 30.