MSTR’s Road to S&P 500 Inclusion: A Closer Look
As the financial world eagerly anticipates the potential inclusion of MicroStrategy (MSTR) in the esteemed S&P 500 index by June 20, all eyes are on the company’s financial performance. The final hurdle for MSTR to meet the eligibility criteria is achieving positive GAAP net income over the trailing 12 months, encompassing the most recent four quarters.
Currently, MSTR fulfills all requirements for S&P 500 inclusion, except for this crucial milestone. The company’s fate hinges on the upcoming Q1 2025 earnings report, which must demonstrate significant profitability to offset losses from the previous quarters. The key catalyst for this potential turnaround lies in the adoption of the Financial Accounting Standards Board (FASB) digital asset accounting rule, which has now become mandatory.
The FASB rule change mandates that companies must recognize their bitcoin holdings at fair value, allowing price gains to impact the bottom line positively, just as price declines would. Prior to this rule, corporate digital asset holders were compelled to account for their holdings at the weakest valuation levels. For instance, in the fourth quarter of 2024, MicroStrategy valued its bitcoin holdings at less than $16,000 per token, resulting in a substantial $1 billion impairment loss, despite bitcoin’s year-end price of approximately $94,000.
Analyzing the Numbers: A Detailed Perspective
Richard Hass, an analyst at X, provided valuable insights into MSTR’s financial requirements for S&P 500 eligibility. Assuming that MicroStrategy’s bitcoin holdings remain unchanged until March 31, the closing price of bitcoin for the first quarter must surpass $96,337 to meet the positive trailing 12-month earnings threshold. Hass emphasized the significance of achieving $1.113 billion in Q1 2025 earnings to ensure positive earnings over the past four quarters, positioning the company favorably for S&P 500 inclusion.
With a current treasury of 478,740 BTC, MicroStrategy’s path to S&P 500 inclusion largely depends on the trajectory of bitcoin prices and the company’s continued accumulation of tokens. Mark Palmer, an analyst at Benchmark, highlighted the strategic advantage gained by MSTR through the adoption of the amended FASB guidance. Palmer noted that MSTR’s consistent outperformance of existing index constituents over the past four years underscores its strong candidacy for S&P 500 inclusion, making exclusion a surprising outcome.
Palmer further emphasized the symbolic significance of S&P 500 inclusion, referring to it as the “holy grail” for MicroStrategy. Inclusion in this prestigious index would validate the company’s Bitcoin strategy, as all S&P 500 index funds would hold MSTR shares, indirectly exposing investors to the cryptocurrency.
Expert Insight: A Glimpse into the Analyst’s World
James Van Straten, a Senior Analyst at CoinDesk specializing in Bitcoin and its macroeconomic implications, brings a wealth of expertise to the discussion. With a background in on-chain analytics and a keen understanding of Bitcoin’s role within the broader financial landscape, Van Straten offers nuanced perspectives on MSTR’s journey towards S&P 500 inclusion.
In addition to his professional endeavors, Van Straten serves as an advisor to Coinsilium, a UK publicly traded company, providing valuable guidance on Bitcoin treasury strategies. His diverse investments in Bitcoin, MicroStrategy (MSTR), and Semler Scientific (SMLR) underscore his deep-rooted belief in the potential of digital assets and their impact on the financial markets.
As the deadline for S&P 500 inclusion approaches, MicroStrategy stands at a critical juncture, poised to make history with its potential entry into this prestigious index. The company’s strategic decisions, financial performance, and the trajectory of Bitcoin prices will ultimately determine its fate in the coming months. Stay tuned for further developments as MSTR navigates the final stretch towards S&P 500 inclusion, a milestone that could reshape the landscape of traditional finance.
