S&P 500 Rejects Strategy Despite Meeting Eligibility Criteria, JPMorgan Reports

TLDR

• Strategy (formerly MicroStrategy) was rejected from S&P 500 despite meeting technical criteria
• JPMorgan analysts warn this signals caution toward companies functioning as bitcoin funds
• Index committee’s decision affects not just Strategy but similar crypto treasury firms
• Other index providers might reconsider including crypto treasury companies
• Market shows signs of “fatigue” with share prices dropping and funding activity slowing

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The S&P 500 index committee’s recent decision to reject Strategy (formerly MicroStrategy) from inclusion in the prestigious index has sent ripples through the cryptocurrency industry. According to JPMorgan analysts, this rejection represents a “blow to crypto treasuries” despite the company technically meeting all eligibility requirements.

The decision came last week when the S&P 500 committee exercised its discretionary powers to exclude Strategy from the index. This move has raised questions about the future of companies that have converted their balance sheets into large bitcoin holdings.

JPMorgan analysts, led by managing director Nikolaos Panigirtzoglou, highlighted in a Wednesday report that the rejection affects not only Strategy but also the growing number of similar firms that have emerged in recent months. The analysts emphasized that the decision signals caution from major indices toward companies that primarily function as bitcoin funds.

Strategy, as the largest public crypto treasury company, has previously gained membership in other major benchmarks including the Nasdaq 100, MSCI USA, MSCI World, and the Russell 2000. These inclusions have been key drivers for the company’s stock performance.

The rejection from the S&P 500 suggests that this indirect channel for bitcoin exposure to enter institutional and retail portfolios “may be reaching its limits,” according to the JPMorgan report. This development could have far-reaching consequences for crypto treasury businesses.

Market Pressures Building

The analysts pointed to a more concerning risk: other index providers that have already included Strategy or similar crypto treasury companies might reconsider their approach following the S&P 500’s lead. This could further restrict these companies’ access to broader investment portfolios.

This S&P 500 rejection comes amid other mounting pressures. Reports indicate that Nasdaq has begun requiring companies with substantial crypto holdings to seek shareholder approval before issuing new shares to fund additional purchases.

Strategy itself recently dropped a commitment it had previously made. The company had pledged not to issue shares at a multiple below 2.5, but abandoned this commitment last month, suggesting changing financial strategies in response to market conditions.

Market fatigue is becoming evident in both share prices and funding activity for crypto treasury firms. The JPMorgan report notes that equity issuance volumes have slowed sharply in recent quarters, showing waning investor enthusiasm.

Alternative Financing Approaches

While debt issuance has continued for these companies, it comes with rising risk premiums, indicating increased caution from lenders. Some corporate treasuries have turned to more complex financing structures to extend their business models.

These alternative approaches include bitcoin-backed loans, token-linked convertibles, and structured payouts. However, the JPMorgan analysts warned that skepticism toward these models is increasing across the market.

The report suggests that capital may shift away from balance-sheet-driven treasury firms toward crypto companies with actual operating businesses. This includes exchanges and miners that generate revenue from operations rather than primarily from holding digital assets.

The S&P 500 committee’s rejection appears to reflect broader market concerns about companies whose primary business model revolves around holding cryptocurrency rather than traditional business operations.

The decision comes at a time when many investors are growing wary of crowded trades and weak performance in the sector. This market sentiment shift could reshape how cryptocurrency-focused companies structure their operations and balance sheets moving forward.

Strategy’s stock has historically benefited from index inclusion, allowing bitcoin exposure to filter into major investment benchmarks. The S&P 500 rejection may mark a turning point in how traditional finance views and incorporates crypto treasury businesses.

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