Strategy's S&P 500 Prospects Intact Amid Bitcoin Market Volatility
Strategy's S&P 500 Prospects Remain Intact
The recent downturn in the crypto market has raised questions about the sustainability of corporate Bitcoin strategies. However, Matrixport researchers suggest that Strategy, the largest corporate holder of Bitcoin, continues to be a strong candidate for S&P 500 inclusion.
Despite ongoing skepticism about Strategy's ability to endure significant market declines, analysts assert that a large-scale Bitcoin liquidation by the company is not an immediate concern, according to a Matrixport research report.
Impact on Stockholders
The primary pressure from the recent market correction affects stockholders who purchased shares at inflated net asset values (NAV). Strategy's shares have dropped from $474 to approximately $207, yet the company may still qualify for S&P 500 inclusion by December, Matrixport noted.
"When compared to Bitcoin, the shares now seem relatively affordable, and the chance of S&P 500 inclusion by December is still viable."
Investors are reminded of the critical importance of timing and valuation in their investment decisions, the report emphasized.
Market Intelligence and Credit Ratings
Crypto market intelligence firm 10X Research has projected a 70% probability of Strategy's inclusion in the S&P 500 before year-end, according to a report from Cointelegraph on October 29. Despite receiving a "B-" credit rating from S&P Global Ratings, placing it in the speculative grade category, Strategy remains a significant player.
Challenges for Smaller Crypto Treasuries
Concerns over the viability of smaller digital asset treasuries (DATs) persist, as several companies have experienced declines in their market net asset value (mNAV), hindering their ability to fund further Bitcoin acquisitions.
The mNAV ratio, which compares a company's enterprise value to its crypto holdings, is a crucial metric. An mNAV above 1 allows for capital expansion through share issuance. Falling below this level restricts growth opportunities.
Several DATs, including Strategy, Bitmine, Metaplanet, Sharplink Gaming, Upexi, and DeFi Development Corp, have seen their mNAVs dip below critical levels.
Despite these challenges, Strategy's executive chairman, Michael Saylor, remains unconcerned about potential Bitcoin downturns, stating, "The company is built to withstand an 80 to 90% drawdown." Strategy recently acquired 8,178 Bitcoin, valued at $835 million, marking a substantial increase from typical monthly purchases.