When Bitcoin changes recipients: how index rebalancing drives treasuries into liquidity crisis

In summer 2025, Bitcoin (BTC) is still trading at $90.81K, with a total market capitalization of $1813.94B. However, a dangerous gap appears between the price increase and the escalation of liquidity risk. MSCI’s proposal to eliminate treasury companies from major equity indices has sparked discussions among institutional investors in recent months, and JPMorgan has publicly modeled possible consequences of reclassification—estimating that mechanical outflows could reach up to $8.8 billion. The MSCI consultation, ending December 31 with a decision scheduled for January 15, thus forces a fundamental resolution: are the stocks of companies holding Bitcoin on their balance sheets truly investment securities, or are they misappropriated funds dressed in corporate attire?

Three capital channels compete for dominance

By mid-2025, institutional capital directed toward Bitcoin was divided into three roughly equal paths. Regulated spot ETFs managed over $100 billion, and BlackRock’s IBIT alone held over $100 billion in BTC—accounting for about 6.8% of the entire circulating supply. Mining operations offered a second route, directly linked to BTC through production. The third channel unexpectedly became influential—though underestimated—public companies for which accumulating Bitcoin on their balance sheets became a primary business goal.

October reports documented a sharp increase in this third segment. Over 200 US public companies adopted treasury strategies with digital assets by September 2025, holding an estimated total of $115 billion in crypto and reaching a market cap of about $150 billion. For institutions limited by mandates prohibiting direct crypto ownership, such companies’ stocks represented an ideal workaround—tracking Bitcoin via equity exposure without violating compliance guidelines.

The problem: when stocks become proxies

However, this convenience was associated with invisible structural risks. Many newer treasuries financed purchases through convertible bonds and private placements. When their stock prices fell below the value of their held Bitcoin, management became vulnerable to pressure: sell coins and buy back shares to maintain the appearance of balance sheet value. In 2025, treasuries invested about $42.7 billion in crypto, with $22.6 billion in Q3 alone—an pace indicating desperation rather than strategy.

The risk was especially acute for specialized players. Treasuries focused on Solana (SOL, currently trading at $140.04), saw their total net asset value drop from $3.5 billion to $2.1 billion, a 40% decline. Analysts warned that even liquidating a small part of their positions could trigger forced sales totaling between $4.3 billion and $6.4 billion.

MSCI changes the game

In October, MSCI launched consultations that seemed technically neutral—excluding from the Global Investable Market Indexes any company whose digital assets exceed 50% of total assets. These were standard index procedures. However, in reality, the proposal posed a single punch question: do these stocks exhibit characteristics similar to investment funds already residing outside equity benchmarks?

JPMorgan responded with mathematics. It valued the leading treasury’s market cap at around $59 billion, of which $9 billion was in passive vehicles tracking major indices. In a scenario where MSCI reclassifies these securities independently, about $2.8 billion of passive assets would be forced to sell. If Russell and other providers follow suit, mechanical flows could reach the amount Barron’s estimated at $8.8 billion.

This figure ignited public outrage. JPMorgan faced criticism for allegedly forewarning market moves, and calls to boycott the bank and short its shares appeared in the media. Bankers fell into a trap: the more detailed analyses they published, the more the discussion about the impact of these publications on market dynamics intensified.

The long tail of liquidity risk

Yet, behind the boycott drama lies a more fundamental market transformation. Treasuries facing a changed index status and more difficult financing conditions faced a choice: limit future Bitcoin purchases or, in some cases, liquidate holdings to strengthen their balance sheets.

Risks are unevenly distributed. Strategy signaled it would not sell BTC to stay below any threshold—instead, it redefines itself as a “Bitcoin-structured financial company,” doubling down on the narrative of being an operational enterprise rather than a fund. Smaller treasuries, especially those with weakened balance sheets, lack this comfort. They represent a long tail of risk—a collective “weakest link system,” where index reclassification could trigger cascading forced individual sales, collectively destructive.

Capitalization of Metaplanet (Japan, a position in small-cap indices), along with dozens of smaller treasury schemes scattered worldwide, form a second layer of threat. In each case, MSCI has frozen updates, and passive flows may only amount to hundreds of millions—but in conditions of reduced stock liquidity, even this could suffice to trigger worsening financing conditions.

Rotation from stocks to ETFs

The mechanics of reallocation are simple. MSCI benchmarked index funds cannot replace treasury stocks with Bitcoin ETFs—contractual obligations prohibit it. Instead, they rotate into other assets to fill the index gap. This causes a shock to stock liquidity—not an automatic sale of Bitcoin.

But the second set of consequences is more significant. When treasuries lose index support and financing costs rise, they naturally limit future purchases. Ethereum (ETH, currently trading at $3.12K), and other altcoins may experience particularly sharp cooling, as treasuries begin experimenting with holdings outside BTC-only.

The spectacular growth of spot Bitcoin ETFs—managing over $100 billion in less than a year since launch—offered a cleaner alternative for exposure without balance sheet leverage or discount issues affecting treasury stocks. Institutions could simply shift from stocks to dedicated products, bypassing all complications.

MSCI consultation accelerates transfer of power

MSCI’s rules have not yet been implemented—consultation window runs until December 31, with a decision scheduled for January 15, and implementation in the review in February 2026. But many indices and providers—Russell, FTSE Russell—are already alert, watching how the process develops. FTSE Russell has not started formal consultations on digital asset treasuries, but the scenario of an $8.8 billion outflow assumes that other major providers will adopt MSCI methodology over time.

DLA Piper’s analysis sounds like a warning that regulators and market guardians—including index creators—are scrutinizing treasury disclosures more closely. This increases the likelihood of a wave of imitators, even if it has not yet formally begun.

The stake: ownership structure of Bitcoin

MSCI’s move forces institutions to a fundamental decision: should Bitcoin be part of equity benchmarks or dedicated crypto products? The consultations are methodological, but the stakes are structural.

If MSCI enforces exclusion, exposure to Bitcoin will shift from treasury stocks—becoming forced sellers when equity valuations burst—to regulated ETFs. For Bitcoin itself, this rotation may be neutral or even positive if inflows into ETFs offset treasury sales. For stocks, it is unequivocally negative liquidity-wise.

Long-term implication: Bitcoin’s beta will concentrate in dedicated products and a few large corporate treasuries, rather than spreading across a more dispersed ecosystem of smaller balance sheet holders who become forced sellers when the market turns. The response will reshape not only index weights but also Bitcoin ownership concentration—and whether such concentration remains stable is an unanswered question.