MicroStrategy must achieve cumulative positive profits over four quarters to qualify for S&P 500 inclusion.
Upcoming changes allowing Bitcoin valuation as net income could significantly enhance MicroStrategy’s reported earnings.
Even if eligible, inclusion in the S&P 500 depends on the committee’s subjective assessment, as seen in Tesla's 2020 case.
Microstrategy Bitcoin’s largest institutional investor has pointed out that BTC might be added to the S&P 500 stock market index. ETF senior analyst for Bloomberg, Eric Balchunas, said that while the company has come a long way in its investment trajectory. However several critical obstacles remain in the path to scoring the essential index.
Profitability requirements present challenges
The rules that must be met for a particular firm to be included in the S&P 500 include; the firm must have cumulative positive profits in each of the last four quarters. MicroStrategy, however, has registered profitability in only one of the last four quarters making it a current candidate for exclusion.
The future development that may be beneficial for the company is the change of accounting rules. The new rule would allow MicroStrategy to include the fair value of bitcoins on the balance sheet considering this as an income. This has a good scope of increasing the company's profits and enhancing earnings to meet the index’s financial qualifications. However, the final decision lies in the hands of the S&P 500 inclusion committee.
https://twitter.com/EricBalchunas/status/1868054771841552670 Committee’s Discretion and Previous Exclusions
The S&P 500 inclusion committee evaluates stocks based on financial metrics and broader representational criteria for the U.S. stock market. The process, however, involves significant subjectivity, as the committee is not bound solely by financial performance.
Historical instances illustrate this discretion. Tesla, satisfied profitability of at least 4 consecutive quarters in 2020 was not included in the index at first. It can be noted that Tesla was added to the index after significant fluctuations in its stock, in particular, a reduction in price before its inclusion in December of the same year. Such precedents even when defining the stochastic nature of the committee’s decision-making show the tough times awaiting MicroStrategy even when it attains financial eligibility.
Recent Developments for MicroStrategy
MicroStrategy has recently registered a major success in getting into the Nasdaq- hundred index which is a market cap-weighted index majoring in technology. This recognition strengthens its standing in the technology and crypto industries but does not influence its eligibility for the S&P 500.
Some experts expect other firms that focus on cryptocurrencies like Coinbase to also list in the S&P 500 shortly. Bitwise noted that if Coinbase continues along this pace, it could become an ETF next year. These developments reflect growing market interest in companies tied to the cryptocurrency industry.
MicroStrategy’s journey toward possible inclusion in the S&P 500 remains uncertain. While changes in accounting standards and its growing market presence improve its prospects, ultimately. The inclusion will depend on meeting the financial criteria and gaining approval from the S&P 500 committee.
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