Witnessing history: Bitcoin concept stock MSTR joins the Nasdaq 100 Index

Author: Carbon Chain Value

On December 13, Nasdaq officially announced the annual restructuring results of the Nasdaq 100 Index. Among them, MicroStrategy (MSTR), which claims to be a Bitcoin company and has seen explosive growth this year, will be added to the index and become one of the 75 largest non-financial companies on Nasdaq. It is reported that this addition will significantly increase the Nasdaq 100 Index's exposure to Bitcoin and will expose MSTR to billions of dollars in passive investment. Currently, the Nasdaq 100 Index tracks the largest non-financial companies listed on the Nasdaq exchange, including market leaders like Apple, Nvidia, Microsoft, Amazon, Meta, Tesla, and Costco.

CoinDesk senior analyst James Van Straten stated that MicroStrategy's inclusion in the Nasdaq 100 Index can be seen as the second biggest news of 2024, second only to the U.S. listing of a Bitcoin spot ETF. These funds typically buy at any price level every month, which will add another buyer for MSTR, as Michael Saylor continues to issue at market price (ATM) to dilute shareholders, but the buyer base will be larger.

Bloomberg senior ETF analyst Eric Balchunas mentioned on social media that MicroStrategy's addition to the Nasdaq 100 Index symbolizes a shift in the era.

Some are curious: what is MSTR's current weight in the index? Eric Balchunas stated that they estimate it will receive a weight of 0.47%, making it the 48th largest holding. This weight corresponds to approximately $2.1 billion in purchases through all ETFs tracking the index, which have a total value of $451 billion. They did not include SMA or CIT or any active strategies, so the final amount may be slightly higher.

However, another Bloomberg ETF analyst, James Seyffart, warned that MicroStrategy's inclusion in the index may be short-lived, as the company's value comes almost entirely from its Bitcoin holdings rather than actual operating business, and the company may be reclassified as a financial company in March. MicroStrategy founder and executive Michael Saylor has even stated that he plans to transform the company into a "Bitcoin bank," making it less like a tech company.

There is a market view that the current SPDR S&P 500 Trust (SPY) is the largest ETF by size, with assets under management of about $650 billion, and may need to include MSTR to compete with rivals. In that case, millions of investors will indirectly invest in Bitcoin, thereby increasing the flywheel effect.

The restructuring results of the Nasdaq 100 Index and related ETFs such as QQQ will take effect before the market opens on December 23.

Review of MicroStrategy's Bitcoin Strategy

Since mid-2020, MicroStrategy co-founder and chairman Michael Saylor decided to invest in Bitcoin as a hedge against inflation. The company initially used cash for acquisitions but has since shifted to using proceeds from issuing and selling stock and convertible bonds to enhance its purchasing power.

According to previous reports from Zhitong Finance, this strategy, along with the surge in Bitcoin's value, has helped MicroStrategy outperform all major U.S. stocks, including AI leader Nvidia. Since August 2020, MicroStrategy's stock price has risen by over 2500%. During the same period, Bitcoin has increased by about 660%.

As of November 8, 2024, the company, headquartered in Tysons Corner, Virginia, holds a total of 423,650 Bitcoins, with a total purchase price of $25.6 billion and an average cost of $60,324 per coin. Currently, MicroStrategy is the largest publicly traded holder of Bitcoin, second only to BlackRock.

Additionally, according to Wall Street News, MicroStrategy has adopted "BTC Yield" as a metric to measure its Bitcoin acquisition strategy. MicroStrategy explains that the concept of BTC Yield refers to the percentage change in the number of Bitcoins owned by the company per share between two dates.

Specifically, as of November 17, assuming all of the company's convertible debt has been converted into stock, each 1,000 shares of outstanding stock would own 1.29 Bitcoins. This ratio has increased by 41.8% compared to December 31 of last year, when each 1,000 shares owned only 0.91 Bitcoins. MicroStrategy refers to this 41.8% increase as the "year-to-date BTC Yield."

This yield can be calculated over different time periods, such as quarterly or year-over-year, or by selecting any two dates with data for comparison.

Recently, the BTC Yield has shown a rapid upward trend. Just four weeks ago, MicroStrategy announced in a press release that "the year-to-date BTC Yield has reached 26.4%," a significant increase from 17.8% on September 30.

When MicroStrategy first adopted BTC Yield as a key performance indicator, the company ambitiously stated that starting next year, they would strive to raise this metric to a range of 4% to 8%.

What is the Nasdaq 100 Index?

According to official information, the Nasdaq 100 Index is composed of the 100 largest non-financial companies listed on the Nasdaq stock market, with a history dating back to January 1985—nearly 40 years ago—when it was launched alongside the Nasdaq Financial 100™ Index, which consists of the 100 largest financial stocks listed on Nasdaq. These indices serve as benchmarks for financial products such as options, futures, and funds. The Nasdaq 100 is rebalanced every December, with the Friday coinciding with the expiration date of the quarterly index futures, index options, stock options, and single stock futures (referred to as quadruple witching expiration).

The Nasdaq 100 Index serves as the basis for the Invesco QQQ Trust (Nasdaq: QQQ), which aims to provide investment results that correspond to the performance of the Nasdaq 100 Index (before fees). Additionally, options, futures, and structured products based on the Nasdaq 100 Index and Invesco QQQ Trust are also traded on multiple exchanges.