Disclaimer: The analyst who authored this piece is a shareholder of Strategy (MSTR).
Strategy (MSTR) appears to be on the verge of qualifying for inclusion in the prestigious S&P 500 index by June 20, contingent on its upcoming financial performance.
Understanding the Eligibility Requirements
As it stands, Strategy meets nearly all criteria for S&P 500 inclusion, with one critical exception: it must report a positive GAAP net income over the last 12 months, which encompasses the previous four quarters. The key to achieving this goal lies in the financial outcomes of Q1 2025. The company needs to generate sufficient earnings to counterbalance losses from the prior quarters. This could be facilitated by the recent implementation of the Financial Accounting Standards Board (FASB) digital asset accounting rule, which has now become mandatory.
Under the new FASB rule, companies are obligated to assess their bitcoin (BTC) holdings at fair market value. This means that any price gains will positively impact the company’s bottom line, while price declines will also be reflected. Previously, companies were required to report their digital assets at their lowest values, leading to significant discrepancies between market value and reported financials. For instance, in Q4 2024, Strategy reported its bitcoin holdings at under $16,000 per token, resulting in a staggering $1 billion impairment loss, despite bitcoin closing the year around $94,000.
The Crucial Bitcoin Price Point
A recent analysis by Richard Hass highlights the financial implications for Strategy as they approach the end of Q1. To meet the requirement for positive trailing 12-month earnings, bitcoin must close the first quarter above $96,337. He noted that given MSTR’s Q4 2024 earnings of -$671 million, the company would need to generate $1.113 billion in Q1 2025 to achieve a net positive income over the trailing twelve months. With a current treasury of 478,740 BTC, reaching a bitcoin price of $96,337 by March 31 is essential for MSTR’s eligibility.
Optimism Surrounding S&P 500 Inclusion
Should bitcoin prices maintain their upward trajectory and Strategy continue to accumulate BTC, the possibility of S&P 500 inclusion is becoming increasingly realistic. Benchmark analyst Mark Palmer expressed optimism regarding the situation, stating, “MSTR’s adoption of the amended FASB guidance enhances its case for S&P 500 inclusion. Given its performance outpacing every current index constituent over the past four years, its exclusion would be unexpected.”
Palmer further elaborated, “While joining the Nasdaq-100 was a significant milestone, the S&P 500 represents the ultimate achievement. Inclusion would not only validate MSTR’s Bitcoin strategy but also ensure that all S&P 500 index funds would hold MSTR shares, thereby indirectly exposing investors to Bitcoin.”
Disclaimer: Richard Hass’s original analysis was conducted prior to Strategy’s most recent bitcoin acquisition. CoinDesk has reached out for updated insights following Monday’s purchase.
