Wall Street vs. Bitcoin: Why Strategy’s Massive BTC Treasury Fails the S&P 500 Test
- Keyword Financial
- Nov 26
- 11 min read
Introduction
Strategy Inc. (formerly MicroStrategy) has built a massive $56 billion Bitcoin treasury, holding over 641,000 BTC — nearly 3% of Bitcoin’s total supply — but this aggressive Bitcoin accumulation strategy is now blocking its path into the S&P 500 index. Fueled by $21 billion in equity, preferred stock, and convertible debt issued in 2025, the company transformed from a traditional software and analytics firm into a de facto leveraged Bitcoin investment vehicle. As the balance sheet swelled with BTC, the stock became highly correlated with Bitcoin’s price while suffering from heavy shareholder dilution, sending the share price 68% below its highs and triggering a $5.38 billion pullback from institutional investors.
To support its Bitcoin-first strategy, Strategy restructured both its funding and custody frameworks, reinforcing its role as a flagship corporate Bitcoin holder but deepening concerns about its equity story. The firm diversified custodians by moving roughly 58,000 BTC to Fidelity Digital Assets, adopting a multi-custody model that pleases lenders and risk managers but reduces on-chain transparency for investors and analysts. Management also introduced a proprietary “Bitcoin Rating” metric to reassure creditors, showing that even at sharply lower BTC prices the company’s Bitcoin collateral still more than covers its convertible debt. This framing strengthens Strategy’s credit profile, but for equity holders it does little to offset the ongoing dilution and earnings volatility inherent in a Bitcoin-levered balance sheet.
These structural choices clash directly with S&P 500 inclusion rules, which require four consecutive quarters of positive earnings. Because Strategy’s reported profits are mechanically tied to Bitcoin price volatility, its results whipsaw between multi-billion-dollar gains and losses, making consistent profitability — and therefore index eligibility — extremely difficult. As a result, Wall Street index providers exclude Strategy from the S&P 500 despite its market cap and liquidity, denying it the passive inflows that typically support large-cap stocks. The company has successfully proven that public markets will finance a massive Bitcoin reserve strategy, but its reliance on leverage, dilution, and Bitcoin-linked earnings has created a paradox: Strategy dominates the Bitcoin treasury landscape, yet its stock valuation and S&P 500 exclusion reflect mounting skepticism about whether this Bitcoin-centric business model is sustainable for long-term shareholders.
Background
Strategy Inc. — the company formerly known as MicroStrategy — has become the flagship example of a Bitcoin treasury strategy taken to its logical extreme. In just a few years, it has rebranded around Bitcoin, used public markets to finance a massive BTC reserve, and turned its stock into one of the highest‑beta proxies on institutional desks for directional Bitcoin exposure.
Yet despite holding more than 641,000 BTC (around $56 billion at recent prices) and meeting the size and liquidity thresholds that typically qualify a firm for blue‑chip status, Strategy remains on the outside of the S&P 500 index looking in. The same financial structure that makes it such a pure Bitcoin play is also what keeps it out of the flagship U.S. equity benchmark — and that has real consequences for how the company is valued, funded, and perceived by institutional allocators.
This article unpacks how Strategy got here, why its Bitcoin business model conflicts with traditional index rules, and what that means for DeFi, fintech, and anyone thinking about blending crypto-native balance sheets with TradFi capital markets.
From Software Vendor to Bitcoin Balance-Sheet Giant
Strategy started life as MicroStrategy, a business intelligence and analytics software company. In 2020, it began reallocating excess cash into Bitcoin, positioning BTC as a superior long‑term store of value relative to holding U.S. dollars or short‑term Treasuries. Over time, this evolved from a tactical treasury move into the core of the corporate strategy.
According to on-chain and public market trackers like BitcoinTreasuries.net, Strategy has grown into the largest public corporate holder of Bitcoin, with a balance that has climbed from tens of thousands of BTC in 2020 to well over 600,000 BTC in 2025. Crypto-native venues like OKX describe this as a template for corporate Bitcoin adoption, highlighting how Strategy funded its purchases with a mix of equity sales, preferred shares, and convertible debt rather than just retained earnings or cash reserves (OKX).
In 2025 alone, the company raised roughly $21 billion via:
Common equity issuance
Preferred equity offerings
Convertible debt
and used those proceeds to steadily accumulate Bitcoin, eventually controlling almost 3% of the total BTC supply.
From a DeFi or fintech lens, this looks very familiar:
Treat BTC as the reserve asset (akin to protocol-owned liquidity or a reserve backing a stablecoin).
Use continuous issuance (new equity and preferred shares) plus levered instruments (convertible notes) to grow the reserve.
Let market participants decide at what premium or discount they’ll fund that strategy.
The result: Strategy’s stock stopped trading like a software/analytics name and started trading more like a leveraged Bitcoin investment vehicle wrapped in a corporate shell.
When the Equity Story Breaks, Even as the Balance Sheet Grows
The balance sheet looks spectacular on paper: hundreds of thousands of BTC, financed by public markets, with a cost basis well below current spot prices. But the equity narrative has become much harder for traditional investors to hold.
Several things happened at once:
Stock–Bitcoin Correlation Tightened
MSTR (Strategy’s stock) increasingly traded like a high‑beta Bitcoin ETF rather than a company valued on software revenue, margins, or free cash flow. For many institutions, that made it redundant next to cheaper, more liquid spot Bitcoin ETFs launched in the U.S. in 2024.
Leverage by Design
Every fresh raise — whether equity, preferred, or convertible — effectively increased the leverage of the Bitcoin position at the corporate level. When BTC rallies, this structure amplifies upside. When BTC sells off, the same leverage magnifies drawdowns in equity value.
Structural Dilution
Continuous issuance weakens the economic claim of existing common shareholders on the Bitcoin stack. Equity investors are not just underwriting Bitcoin volatility, they’re also underwriting ongoing dilution as management raises more capital to buy more BTC.
Institutional De‑Risking
As risk preferences shifted toward more predictable cash flows and less exotic capital structures, institutional investors cut their holdings. The CryptoSlate reporting notes that institutional exposure to Strategy’s stock fell from about $36.32 billion to $30.94 billion, a retreat of $5.38 billion over two quarters, reflecting both market-wide de‑risking and discomfort with the funding model.
For many long-only and multi‑asset allocators, the question stopped being “Do we like Bitcoin?” and became “Do we want to own a perpetually levered, continuously diluted Bitcoin wrapper instead of just holding Bitcoin or a spot ETF?”
A Year of Capital Raising That Changed the Company’s Identity
The mechanics matter here, especially for a fintech or DeFi-native audience that thinks in terms of tokenomics and capital efficiency.
Strategy reportedly issued in 2025:
$11.9B in common equity
$6.9B in preferred equity
$2.0B in convertible debt
Every one of these transactions:
Added more claims senior to or alongside common equity (in the case of preferreds and converts).
Incrementally diluted the Bitcoin-per-share metric that many investors track as a proxy for how much BTC exposure each share actually represents.
Signaled clearly that management’s first priority is growing the Bitcoin reserve, not stabilizing earnings per share or minimizing dilution.
In a risk-on environment, this might have been rewarded as an aggressive, high‑conviction Bitcoin accumulation strategy. But in a regime where allocators are rotating toward quality, cash‑flow, and lower volatility, it pushed Strategy out of many mandates’ comfort zones.
The company became:
A credit story that looks relatively well‑collateralized (because of the BTC stack), and
An equity story that many view as structurally dilutive and tightly tethered to BTC drawdowns.
Custody Realignment: From Single-Provider to Institutional-Grade Multi-Custody
Behind the scenes, Strategy also reworked how it holds Bitcoin — a detail that is very relevant to anyone focused on institutional crypto infrastructure.
On-chain analytics platform Arkham Intelligence reported that Strategy moved roughly 58,000 BTC (about $5.1 billion) to Fidelity Digital Assets over a two‑month window, building a more diversified custody model after years of primarily using Coinbase as its main custodian.
Key implications:
From single custodian to multi-custody
This better matches what credit analysts and institutional lenders expect: minimizing single‑point-of-failure risk and aligning with traditional standards for collateral segregation and operational resilience.
Omnibus custody vs. transparent wallet clusters
Fidelity uses an omnibus custody structure that aggregates client assets on-chain, rather than providing clear, labeled wallets per customer. This is common in TradFi-style custody, but it means:
Less on-chain transparency: on-chain sleuths and retail traders can no longer easily track Strategy’s BTC in clearly tagged wallet clusters.
More reliance on custodian attestations, internal controls, and audit reports rather than block explorer visibility.
For DeFi and crypto-native participants used to open ledgers and real-time wallet analytics, this is a step away from transparency. For lenders and rating agencies, it is often a step toward what they recognize as institutional-grade risk management.
The “Bitcoin Rating”: How Creditors See the Same Balance Sheet
To reassure bondholders and potential new lenders, Strategy introduced an internal “Bitcoin Rating” — essentially a coverage ratio that compares:
Market value of Bitcoin treasury ÷ Face value of convertible notes
At a Bitcoin price around $74,000, roughly matching the company’s blended cost basis, this ratio comes out around 5.9x. Even in a deep drawdown to $25,000 per BTC, the coverage ratio would still be about 2.0x.
In credit language, what this says is:
The loan-to-value (LTV) of Strategy’s BTC‑backed debt is relatively conservative at current prices.
There appears to be ample collateral cushion for debt investors, even if BTC experiences a major cyclical selloff.
For bondholders and credit analysts, this is comforting. The company’s ability to repay or refinance its obligations looks robust as long as Bitcoin remains above suicidal levels.
For equity holders, however, the picture is different:
The Bitcoin Rating does not address how much dilution was required (or will be required) to maintain or grow the BTC position.
It does not mitigate the fact that earnings volatility (driven by GAAP fair-value accounting for BTC) will continue to be extreme quarter to quarter.
It highlights a structural asymmetry: creditors get quantifiable downside protection, while shareholders eat the residual risk of volatility, dilution, and management timing.
This duality is important if you think in DeFi terms: creditors are essentially over‑collateralized lenders into a BTC vault; equity is the junior tranche taking both price risk and capital-structure risk.
Why the S&P 500 Index Still Says “No”
Given Strategy’s market capitalization and trading liquidity, many observers ask: why isn’t it in the S&P 500?
The answer lies in how the index is constructed and governed.
According to S&P Dow Jones Indices’ own methodology and widely cited summaries from sources like Investopedia and the Corporate Finance Institute, to be eligible for inclusion a company must, among other things:
Be a U.S.-domiciled public company
Meet a minimum market cap threshold (most recently in the >$20B range for S&P 500 candidates)
Have sufficient public float and trading liquidity
Crucially, show positive earnings:
In the most recent quarter, and
On a cumulative basis over the last four consecutive quarters
The last point is the problem.
Under updated U.S. GAAP rules, digital assets like Bitcoin held on the balance sheet are now generally carried at fair value, with unrealized gains and losses flowing through the income statement. That means:
When Bitcoin’s price rallies, Strategy reports very large GAAP profits.
When Bitcoin’s price falls, it reports very large GAAP losses — even if nothing changes operationally in the software business.
In other words, Strategy’s reported earnings are mechanically tied to BTC price volatility, not to recurring software revenue or operating margins.
This makes it very hard to deliver four consecutive quarters of positive GAAP earnings, especially in a choppy or sideways Bitcoin market. Even if the company meets the size and liquidity thresholds and even if its operating business is stable, the accounting treatment of its BTC reserve injects so much P&L volatility that it repeatedly fails the earnings test for S&P 500 entry.
There’s also an interpretive layer:
The index committee has discretion and typically favors companies whose results reflect operating performance, not mark‑to‑market swings on a single financial asset.
If Strategy is increasingly viewed more like an investment company or Bitcoin fund with an operating side business, it may simply not fit the committee’s view of what the S&P 500 is meant to represent.
The result is that, despite having market-cap and liquidity metrics that would normally make S&P 500 inclusion almost a formality, Strategy is effectively self‑excluded by the volatility of its own design.
Why Index Exclusion Matters: Passive Flows and Cost of Capital
For a large‑cap U.S. company, S&P 500 membership is not just about prestige. It has concrete implications:
Automatic demand from index funds and ETFs
Trillions of dollars track the S&P 500 via index funds and ETFs. Inclusion forces these vehicles to buy and hold the stock, creating a baseline of sticky, passive demand.
Lower equity risk premium and tighter spreads
Being part of the index typically reduces perceived idiosyncratic risk and can lower the firm’s cost of equity and sometimes even its cost of debt, as its stock becomes a core benchmark component rather than a niche risk asset.
More stable shareholder base
Index investors are less likely to trade based on short‑term headlines or sentiment. Exclusion leaves more of the float in the hands of active traders and hedge funds, which can increase volatility.
Strategy’s Bitcoin-centric model effectively trades off this index optionality for maximum direct BTC exposure. The company has:
Unlocked enormous capital from public markets to build its Bitcoin stack.
But in doing so, sacrificed the accounting stability required to qualify for S&P 500 inclusion and the associated passive flows.
For a DeFi or fintech audience, this is analogous to designing a protocol that is incredibly capital-efficient and high-beta for yield hunters, but structurally unattractive to more conservative LPs who prize token stability and predictable cash flows.
Takeaways for DeFi, Fintech, and Crypto-Native Treasury Design
There are several broader lessons embedded in Strategy’s experience that are highly relevant beyond one stock:
Balance-Sheet Design Has Index Consequences
If you design a corporate or protocol balance sheet to be maximally exposed to a volatile asset, you may:
Attract speculative, thesis-driven capital, and
Disqualify yourself from more rule‑based or risk‑averse capital pools (index funds, certain mandates, conservative credit investors).
Leverage + Continuous Issuance = Structural Tension for Equity
Using perpetual leverage and ongoing issuance to buy more of a volatile asset can work spectacularly while the asset is trending up. Over longer cycles, it often leads to a tug‑of‑war between creditors (better protected) and equity (permanently junior and diluted).
Custody Architecture Shapes Transparency and Trust
Moving from transparent, on-chain‑observable wallets to omnibus custody fits institutional risk frameworks but weakens public on-chain verifiability, which many DeFi participants consider a core feature of crypto-native finance.
Accounting Rules Matter as Much as Market Structure
Even if investors are comfortable conceptually with a Bitcoin treasury strategy, the way GAAP or IFRS requires that BTC be marked to market can make otherwise healthy companies appear extremely volatile on paper — with real consequences for index eligibility and analyst coverage.
Credit vs. Equity: Two Very Different Payoff Profiles
Strategy’s own Bitcoin Rating shows how creditors can feel secure even in deep BTC drawdowns, while equity holders still shoulder volatility, dilution, and timing risk. In DeFi terms, think carefully about whether you want to be the over‑collateralized lender or the residual token holder in similar structures.
Conclusion: A Pioneering Strategy with an Unfinished Equity Story
Strategy has done something genuinely unprecedented:
It proved that public equity and credit markets will finance a multi‑tens‑of‑billions‑of‑dollars Bitcoin accumulation model.
It retooled corporate custody, funding, and disclosure practices around BTC.
It established a template that other corporates and even sovereigns are actively studying as they consider their own digital asset reserves (OKX; AInvest).
But it has not yet solved the equity narrative:
The stock is still governed by Bitcoin’s cyclical volatility,
The capital structure implies ongoing dilution for common shareholders, and
The very features that make Strategy such a pure play on institutional Bitcoin adoption also keep it from crossing the threshold into the S&P 500 and the world of large-scale passive capital.
For a DeFi or fintech builder, this is a powerful case study in trade‑offs. You can build a balance sheet that is maximally expressive of your thesis — in this case, “Bitcoin is the superior long‑term asset” — or one that is maximally compatible with the conventions of traditional indices, ratings, and mandates. Doing both at once is possible, but far from trivial.
If you’d like, I can follow this with a shorter, more technical companion piece focused purely on metrics (BTC-per-share, implied NAV, coverage ratios) that DeFi/fintech readers can use to model a “Strategy-like” Bitcoin treasury structure for their own projects or analyses
Comments