In a recent development, Matthew Sigel, the head of digital assets research at the renowned investment firm VanEck, has created a buzz with his insights shared on social media regarding Block, previously known as Square. Sigel’s post suggests that Block has the potential to become the first Bitcoin holder in the prestigious S&P 500 index.
The Criteria for S&P 500 Inclusion
The journey to becoming part of the S&P 500 is not straightforward, as noted by Sigel. A company must satisfy a stringent set of six criteria to be considered for inclusion:
- Market Capitalization: The company must boast a market cap exceeding $18 billion.
- Public Float: More than 10% of the company’s shares must be publicly available for trade.
- Earnings Performance: The most recent quarter should reflect positive earnings, and the cumulative GAAP earnings of the previous four quarters must also be positive.
- Liquidity: The company must maintain high liquidity levels.
- IPO Seasoning: The company should have been public for over 12 months.
- US Domicile: The company must be domiciled in the United States.
Sigel pointed out that Block has met the earnings criteria following its first-quarter 2024 earnings report. However, he emphasized that inclusion in the S&P 500 is not automatic but rather subject to the discretion of the Index Committee. Historically, companies meeting all the requirements have been included within a period ranging from three to twenty-one months, with notable exceptions such as LULU, which took 65 months.
Sector Diversification: A Key Consideration
Another critical aspect that the Index Committee considers is sector diversification. The aim is to ensure that the S&P 500’s sector composition mirrors the broader economy. Block’s journey with Bitcoin began in October 2020 with an initial investment of $50 million, followed by an additional $170 million in February 2021. CEO Jack Dorsey has been a long-time advocate of Bitcoin, underscoring the company’s commitment to digital assets.
Challenges for MSTR and COIN
While MicroStrategy (MSTR), a leading corporate Bitcoin holder, recently secured a place in the Nasdaq-100, its chances of joining the S&P 500 soon remain slim despite a strong performance in 2024. Eric Balchunas of Bloomberg speculated that the inclusion committee might block MSTR even if it meets the criteria. On the other hand, Bitwise has forecasted that Coinbase could potentially join the S&P 500 within this year.
In a dialogue with one of Sigel’s followers, questions arose about Coinbase’s integration into the index. Although Coinbase meets all six criteria, Sigel described it as a “controversial pick” due to its “pure-play crypto exposure,” highlighting the challenges faced by companies deeply intertwined with the cryptocurrency market.
