MicroStrategy joins the Nasdaq 100 index, Bitcoin indirectly enters mainstream investment perspective

On December 13, Nasdaq announced the annual restructuring results of the 100 Index. Notably, MicroStrategy (MSTR), which claims to be a Bitcoin company, will be included in the index, becoming one of the 75 largest non-financial companies on Nasdaq. This change will significantly increase the Nasdaq 100 Index's exposure to Bitcoin, while also placing MSTR under the spotlight of billions of dollars in passive investment.

Currently, the Nasdaq 100 Index includes the largest non-financial companies listed on the exchange, including market leaders such as Apple, Nvidia, Microsoft, Amazon, Meta, Tesla, and Costco.

Industry analysts believe that MicroStrategy's inclusion in the Nasdaq 100 Index could be a significant event in 2024, second only to the US-listed Bitcoin spot ETF. These index funds typically make regular purchases without being affected by price, which will bring a new group of buyers to MSTR. Although the company's CEO Michael Saylor may continue to dilute shareholder equity through market price issuance, the overall buyer base will significantly expand.

Experts have pointed out that MicroStrategy's inclusion in the Nasdaq 100 Index symbolizes a shift in the times. MSTR's weight in the index is expected to be approximately 0.47%, making it the 48th largest holding. This weight corresponds to around $2.1 billion in purchases through all ETFs tracking the index, which have a total market capitalization of $451 billion. The actual impact could be greater, as this estimate does not include SMA, CIT, or active management strategies.

However, some analysts warn that MicroStrategy's inclusion in the index may only be temporary. As the company's value primarily comes from its Bitcoin holdings rather than actual business operations, it may be reclassified as a financial company in March next year. MicroStrategy founder Michael Saylor has stated plans to transform the company into a "Bitcoin bank", which makes it less like a traditional tech company.

Market views suggest that if the largest ETF - SPDR S&P 500 Trust (SPY) also considers including MSTR, it will allow millions of investors to indirectly access Bitcoin, further enhancing the flywheel effect.

The reorganization of the Nasdaq 100 Index and related ETFs will take effect before the market opens on December 23.

A Review of MicroStrategy's Bitcoin Strategy

Since mid-2020, MicroStrategy, under the leadership of Michael Saylor, began investing in Bitcoin to hedge against inflation. The company initially used cash for purchases and later shifted to raising purchasing power through the issuance of stocks and convertible bonds.

This strategy, combined with the surge in Bitcoin's value, has allowed MicroStrategy's performance to exceed that of all major U.S. stocks, including AI giants. Since August 2020, MicroStrategy's stock price has risen by over 2500%, while Bitcoin has increased by approximately 660% during the same period.

As of November 8, 2024, this Virginia-based company holds a total of 423,650 Bitcoins, with a total purchase value of $25.6 billion and an average cost of $60,324 per coin. MicroStrategy is currently the second largest publicly traded holder of Bitcoin, after a certain asset management company.

MicroStrategy has introduced the concept of "BTC yield" to measure the effectiveness of its Bitcoin acquisition strategy. This metric reflects the percentage change in the number of Bitcoins owned by the company per share over a specific period. For example, as of November 17, assuming all convertible debt is converted into shares, every 1,000 shares of outstanding stock would own 1.29 Bitcoins, an increase of 41.8% from 0.91 at the end of last year.

The company plans to increase the BTC yield to a range of 4% to 8% starting next year.

Introduction to the Nasdaq 100 Index

The Nasdaq-100 Index is composed of the 100 largest non-financial companies listed on the exchange and was established in January 1985. It was launched simultaneously with the Nasdaq Financial 100™ Index, which includes the 100 largest financial stocks. These indices provide benchmarks for financial products such as options, futures, and funds.

The index is rebalanced every December, usually synchronized with the expiration dates of quarterly stock index futures, stock index options, stock options, and individual stock futures (commonly known as quadruple witching days).

The Nasdaq 100 Index serves as the basis for a certain ETF trust, aiming to provide investment results that are consistent with the performance of the index (before expenses). Additionally, derivatives based on the index and ETF trust are traded on multiple exchanges.