Michael Saylor’s growing investment in Bitcoin is positioning him as a notable player, potentially challenging the established order of Wall Street.
Strategy Inc., the software company that Saylor has strategically transformed into a major Bitcoin holder, is now a possible candidate for inclusion in the S&P 500 index. This prospect seemed highly unlikely just a year ago. A substantial, approximately $14 billion gain, though unrealized, in the most recent quarter has, in principle, satisfied the profitability criteria for consideration, based on current guidelines.
While it’s still uncertain, the potential for Strategy’s addition to this major index carries significant implications.
According to Stephens Inc. analysis, if Strategy Inc. is accepted into the S&P 500, passive investment funds that track the index would need to acquire nearly 50 million shares, an investment of around $16 billion at current market values. For Michael Saylor, who has aggressively raised capital to amass a Bitcoin portfolio estimated at $70 billion, this event would represent institutional approval of a plan that was once viewed skeptically as high-risk. It would also mean entities such as pension funds would become indirectly invested in cryptocurrency. This is especially relevant now, as his ambitious funding efforts face market resistance.
Gaining a spot in the index is not automatic. The S&P committee evaluates various factors, including liquidity, profitability, and trading history, and also uses its discretion to ensure sector diversity. Key requirements include being a highly liquid US-based firm with a minimum market capitalization of $22.7 billion and demonstrating positive earnings both in the most recent quarter and cumulatively over the previous year.
The company formerly known as MicroStrategy meets all the requirements. Of the 26 potential candidates, including AppLovin Corp., Robinhood Markets Inc., and Carvana Co., as identified by Stephens, Strategy boasts the highest float-adjusted liquidity ratio. This signifies that, relative to its total market capitalization, the company’s shares are traded with greater activity and efficiency.
Although technology companies already have a significant presence in the index, the committee’s recent inclusion of Coinbase Global Inc., a major US cryptocurrency exchange, as well as Block Inc., Jack Dorsey’s financial technology firm, suggests a recognition of the expanding importance of digital assets.
Melissa Roberts, a managing director and head of strategic opportunities and index rebalancing research at Stephens, stated, “Coinbase’s inclusion sent a clear signal that they aim to develop this industry group. They prioritize representation of leading companies within the 500. Therefore, it becomes difficult to disregard a prominent player in the digital asset space.”
A representative from S&P declined to provide specific commentary, directing attention to the index’s published methodology and noting that committee discretion is part of the selection process. Strategy did not respond to requests for comment.
Despite Michael Saylor’s continued success in proving his critics wrong, concerns are growing about the long-term viability of his approach – using borrowed money to acquire and hold Bitcoin. In August, Strategy’s shares fell by 17%, diminishing the premium that its shares long held above its Bitcoin holdings. Also, recent preferred stock offerings failed to achieve the ambitious capital raising goals, leading the company to issue more common shares and causing investor anxiety.
Furthermore, the volatility associated with Strategy is well-known. The company’s 30-day price volatility is at 96%, higher than Nvidia Corp.’s 77% and Tesla Inc.’s 74%. This volatility could make the selection committee more cautious because they’re entrusted to protect the index’s integrity. Also, some day traders have recently lost money when trying to anticipate index inclusions: Robinhood Markets Inc. shares significantly increased in June due to speculation about its likely inclusion, but the shares fell after the anticipated decision didn’t happen.
Even with Strategy being added to the Nasdaq 100 last December, the S&P 500 represents a bigger opportunity – the funds that passively track it are almost double in size, totaling about $10 trillion. Last year, Saylor suggested that 2025 might be the year it’s included in the S&P 500.
Being added to an index also typically results in a price increase – often referred to as the “index effect.” A research paper by Antti Petajisto, who is currently the chief equity strategist at Brooklyn Investment Group, documented that stocks have historically experienced a rise in price upon entering an index. While the immediate impact has lessened recently as more investors now try to anticipate and profit from these changes beforehand, any price effect is likely to be gradual. The enduring effect is linked to the popularity of index investing, which has continued to grow.
According to Edward Yoon from Macquarie Capital, Strategy’s approximate $90 billion market capitalization positions it as a solid candidate based on size alone. He also points out that the index committee considers sector and industry balance to avoid overconcentration.
Yoon, who is a managing director and heads U.S. ETF/index trading and strategies, explained that meeting the qualifying standards is not a guarantee of being included, and the S&P committee retains the final decision, making it difficult to predict their choices.