Crucial: MicroStrategy’s S&P 500 Hopes Ride on Bitcoin Price Stability
For many in the crypto space, the performance of MicroStrategy (MSTR) is closely watched, largely due to its significant Bitcoin holdings. Now, the company’s potential inclusion in the prestigious S&P 500 index is grabbing headlines, with one analyst giving it high odds – but there’s a crucial condition tied directly to Bitcoin’s price.
Will MicroStrategy Join the S&P 500 Club?
Financial analyst Jeff Walton recently shared his outlook on MicroStrategy’s chances of qualifying for the S&P 500 index in the second quarter of 2024. According to Walton, MicroStrategy (MSTR) has about a 91% probability of making the cut. This isn’t a done deal, however, as it depends on a specific market condition.
The Bitcoin Price Threshold for MSTR
The primary factor determining MicroStrategy’s S&P 500 eligibility, according to Walton, is the price of Bitcoin. For MSTR to qualify, its earnings in the second quarter must exceed the combined net losses from the previous three quarters. Due to MicroStrategy’s accounting method for its vast Bitcoin holdings (ASU 2023-08), gains or losses on Bitcoin directly impact net income.
Walton calculates that Bitcoin must remain above $95,240 until the end of June 30th for MicroStrategy to meet the necessary earnings threshold. As the quarter end approaches, the historical probability of Bitcoin dropping more than 10% over a short period decreases, thus increasing MSTR’s chances.
How Does MicroStrategy Qualify for the S&P 500?
To be considered for inclusion in the S&P 500, a company must meet several criteria, including posting positive total earnings over the past four consecutive quarters. MicroStrategy has reported net losses in the last three quarters. Therefore, a strong positive earning in Q2 2024, driven by Bitcoin’s price performance, is essential to offset those prior losses and achieve cumulative positive earnings.
What Are the Odds Based On?
Jeff Walton’s 91% probability is based on historical Bitcoin price data. Looking at 6-day periods since September 17, 2014, Bitcoin has dropped more than 10% in only about 8.7% of those periods. With only a few days remaining in Q2, the probability of a significant drop decreases further, bolstering MicroStrategy’s prospects.
The Significance of S&P 500 Inclusion
Joining the S&P 500 is a significant milestone for any company. It typically leads to increased visibility, liquidity, and demand for the stock, as index funds and ETFs tracking the S&P 500 must add the company to their portfolios. For MicroStrategy and its prominent figure, Michael Saylor, this would be a major validation, following Coinbase’s inclusion earlier this year, further cementing the growing acceptance of the crypto industry in traditional finance.
Challenges and the Road Ahead
While the odds favor MicroStrategy, market volatility remains a factor. Recent geopolitical events have shown Bitcoin’s sensitivity to global tensions. However, if Bitcoin holds firm above the critical $95,240 level, Michael Saylor’s strategic bet on Bitcoin could pay off with a significant boost from S&P 500 inclusion.
In summary, MicroStrategy’s potential entry into the S&P 500 is highly probable but directly linked to Bitcoin’s price stability above a specific level until the end of Q2. This situation highlights the unique position of MSTR as a publicly traded company deeply intertwined with the performance of the leading cryptocurrency.
