The S&P 500’s refusal to include the company previously called MicroStrategy raises questions about the sustainability of the business model of corporate treasury investments in cryptocurrency. JPMorgan strategists led by Nikolaos Panigirtzoglou say the decision by S&P Dow Jones Indices last week not to promote the company that’s now called Strategy into the S&P 500 index even though it meets size and other key requirements for inclusion, was an important one.
S&P Dow Jones Indices, as is its custom, did not comment on Strategy’s exclusion, and it did not respond to a question from MarketWatch. But it is notable that S&P also does not include closed-end funds and exchange-traded funds in the S&P 500. Although Strategy isn’t technically an investment company, it fundamentally acts as one, as the lion’s share of its market capitalization is based on its holdings of bitcoin rather than on its underlying information-technology business.
“This is signaling that the committee, which can apply discretion in its index inclusion decisions, is concerned about including in the S&P 500 index companies such as MicroStrategy that are effectively bitcoin funds. This rejection is a blow to not only MicroStrategy but also other corporate crypto treasuries that have proliferated in recent months in an attempt to replicate MicroStrategy’s crypto accumulation model,” the strategists said.
The rejection means that there’s a limit to how much crypto will enter investor portfolios through the back door. “More importantly, the risk going forward is in our opinion that other index providers that have already included MicroStrategy or other corporate crypto treasuries into their equity indices, might rethink their approach,” they said. The Nasdaq, they note, has reportedly begun requiring certain companies holding crypto assets to seek shareholder approval before issuing new shares to fund crypto purchases.
“As more questions are raised about the sustainability of corporate treasuries, the risk is that both investors and index providers shift their preference away from corporate treasuries towards crypto companies with real operating businesses such as crypto exchanges or miners,” they added. It’s been a big week for those crypto corporate treasury plays, with EightCo and CaliberCos Holdings each seeing wild spikes higher after crypto purchase announcements.
