MicroStrategy, a pioneer in Bitcoin treasury reserve strategy, has amassed a significant holding of 592,345 Bitcoin, valued at approximately $63.8 billion. With a market capitalization of $106.2 billion, the company now ranks as the 93rd largest publicly traded company in the United States. As the S&P 500 index undergoes its quarterly rebalancing, many are questioning whether MicroStrategy will be included. If it succeeds, Bitcoin could begin automatically integrating into a wide range of investment portfolios, including traditional 401(k) plans, retirement funds, and numerous passive investment strategies. This development could also drive further increases in the stock price of MSTR.
What Are the Requirements for Inclusion in the S&P 500?
The S&P 500 is a stock market index maintained by S&P Dow Jones Indices, comprising 500 of the largest publicly traded companies in the United States. It is widely regarded as one of the best representations of the U.S. stock market and employs a market-capitalization-weighted methodology.
For a stock to be included in the S&P 500 index, it must meet the following criteria:
- The company must be headquartered in the United States.
- It must have a market capitalization of $18.3 billion or more (adjusted periodically based on market conditions).
- The company must report positive cumulative earnings over the last four quarters, including the most recent quarter.
- The stock must be highly liquid, with adequate trading volume, and the majority of shares must be available to the public.
The composition of the S&P 500 is reviewed quarterly by an index committee at S&P Global, which evaluates potential additions and deletions based on these criteria.
Bitcoin Price Needs to Stay Above $95,240 for a 94.2% Success Probability
MicroStrategy’s current market capitalization of $106.2 billion places it well above the minimum threshold, and its stock is known for high liquidity and active trading.
However, the company’s eligibility faced a challenge due to its adoption of the new accounting standard ASU 2023-08. In the first quarter, MicroStrategy reported a digital asset impairment loss of $5.91 billion, based on a Bitcoin price of $82,444 at the end of the quarter. This accounting treatment raised concerns about its profitability—a key requirement for S&P 500 inclusion.
According to analyst Jeff Walton, if Bitcoin closes at or above $95,240 by the end of June, MicroStrategy could recognize substantial unrealized gains, significantly improving its profitability metrics. Walton estimates that under these conditions, the probability of MicroStrategy being added to the S&P 500 could be as high as 94.2%.
Billions in Potential Capital Inflows upon Inclusion
The three largest exchange-traded funds (ETFs) that track the S&P 500 index are:
- SPY (SPDR S&P 500 ETF Trust) with $611 billion in assets under management.
- IVV (iShares Core S&P 500 ETF) with $566.9 billion in assets.
- VOO (Vanguard S&P 500 ETF) with $686.5 billion in assets.
Together, these three ETFs manage approximately $1.86 trillion in assets. Even with a minimal weighting of 0.01%, MicroStrategy could attract around $186 million in capital inflows from these funds alone. More importantly, the inclusion would mean that Bitcoin exposure becomes indirectly available to millions of investors through traditional retirement accounts, pension funds, and passive investment vehicles.
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Frequently Asked Questions
What is the S&P 500 index?
The S&P 500 is a stock market index that includes 500 of the largest companies listed on U.S. stock exchanges. It is widely used as a benchmark for the overall performance of the U.S. equity market.
Why is MicroStrategy’s profitability in question?
Due to new accounting rules (ASU 2023-08), MicroStrategy reported significant paper losses on its Bitcoin holdings in Q1 2024. For S&P 500 eligibility, a company must demonstrate positive earnings over recent quarters.
How does Bitcoin’s price affect MicroStrategy’s S&P 500 chances?
If Bitcoin’s price remains high, MicroStrategy’s unrealized gains could offset reported accounting losses, helping it meet the profitability requirement for index inclusion.
What are the benefits of being included in the S&P 500?
Inclusion can lead to increased visibility, higher liquidity, and significant investment from index-tracking funds, which often results in a higher stock price.
How often does the S&P 500 rebalance?
The index is rebalanced quarterly, with the index committee reviewing companies for potential addition or removal based on eligibility criteria.
Could MicroStrategy’s inclusion impact Bitcoin adoption?
Yes, because MicroStrategy’s stock serves as a Bitcoin proxy. Inclusion would allow traditional investors to gain indirect Bitcoin exposure through regulated and familiar investment products.
Risk Warning
Investing in cryptocurrencies carries substantial risk due to high price volatility. There is a possibility of losing your entire investment. Always assess your risk tolerance carefully.