MicroStrategy's Nasdaq-100 Inclusion Signals Bitcoin-Centric Risks and Rewards | Image Source: Miro.medium.com
TYSONS CORNER, Va., December 17, 2024 – Microstrategy Inc., a company recognized for its aggressive Bitcoin investment strategy, joined the Nasdaq-100 Index on December 23. Inclusion marks an important step, but highlights the unconventional nature of the MicroStrategy business model, as its market value has increased mainly due to its Bitcoin possessions rather than inherited software operations.
The inclusion of MicroStrategy is the result of the Nasdaq-100 rating criteria, which select the 100 largest non-financial companies listed in the Nasdaq composite index based on market capitalization. While the company is classified as a software company, its rise in meteor is largely due to its Bitcoin acquisitions. According to the data, the market capitalization of MicroStrategy increased by more than 6.6% by $1.4 billion in August 2020 – when it began to buy Bitcoin – to about $93.9 billion this week. This increase has exceeded the broader software sector and reflects its deep links with the Bitcoin price trajectory.
The MicroStrategy strategy involves a powerful leverage to finance Bitcoin purchases, amplifying potential and risk gains. “For the moment, MicroStrategy should be considered as a bitcoin leverage company, with a small underlying software company,” said David Tawil, president and co-founder of ProChain Capital. The company currently has more than 2% of the total Bitcoin supply, which is covered by 21 million. A recent analysis by Mark Palmer of Benchmark Co. highlights this change, evaluating the company’s software operations at only $2 per share, while its Bitcoin assets and Bitcoin performance value represent $378 and $337 per share, respectively.
Impact of Bitcoin on Microstrategy Evaluation
The stock performance of MicroStrategy has closely reflected Bitcoin’s upward momentum. The price of Bitcoin has increased by 154% this year, recently crossing the $100,000 milestone, while the shares of MicroStrategy have increased by 521% year-on-day. The company’s leverage investment strategy allows it to overcome Bitcoin during bull markets, as has been seen in recent months. Analysts, however, warn that the opposite could occur in scenarios, exposing investors to increase losses.
MicroStrategy’s co-founder and executive president, Michael Saylor, continues to harass Bitcoin and its role in the future of society. Last week, the company purchased an additional $1.5 billion Bitcoin, funded by stock sales. Saylor has positioned MicroStrategy as a vehicle to adopt Bitcoin, with analysts planning that inclusion in the Nasdaq-100 could attract new institutional entries. According to Bernstein Alliance analysts led by Gautam Chhugani, inclusion could stimulate up to $2.1 billion in the new purchase of MicroStrategy shares through foreign exchange funds (ETFs), such as the research of $322 billion QQQ Trust.
Risks of including Nasdaq-100
MicroStrategy’s entry into Nasdaq-100 adds a unique layer of risk to the index and its investors. In general, Nasdaq-100’s constituents are non-financial corporations whose market values reflect the performance of their principal activities. However, reliance on Bitcoin’s microstrategy creates an unseen vulnerability in other additions to the index. The drop in Bitcoin prices could significantly erode the market value of MicroStrategy, dragging ETFs and index tracking funds.
“Indices like this one have inherent risks for new participants because eligible companies are often high-level and can invest the course,” said an industry analyst. This volatility can discourage fund investors, especially those who do not know the dependence on microstrategy in Bitcoin. While price fluctuations of cryptomoneda have been moderate over time, Bitcoin remains much more volatile than traditional assets, making a risky proxy for investors in the Nasdaq-100.
Bitcoin Reserve proposal and political developments
Adding to the importance of the focused Bitcoin strategy of MicroStrategy is the growing discussion around a strategic Bitcoin reserve of US. During an interview with the CNBC, Saylor emphasized the long-term value of Bitcoin, saying, “All the capital outside the United States and the entire ancient capital of the 20th century will flow into digital assets and the Bitcoin network. The logic for America is to buy it now and own the future.”
According to reports, Donald Trump’s administration is considering establishing a strategic Bitcoin reserve to strengthen the US balance sheet. Senator Cynthia Lummis (R-Wy.) has already introduced the BITCOIN bill, a bill that proposes the purchase of 1 million bitcoins (approximately 5% of the total supply) over a five-year period. The program would command a minimum retention period of 20 years, positioning Bitcoin as a long-term strategic asset. Saylor supports such initiatives, noting that a government-supported Bitcoin reserve could accelerate institutional adoption and strengthen the Bitcoin business model of the MicroStrategy.
“The Bitcoin network will increase by a factor of 100,” Saylor said, urging decision makers to act quickly. The proposal added momentum to the Bitcoin rally, benefiting from the MicroStrategy stock as it continues to function as a de facto Bitcoin proxy.
Market outlook and investor cause
While the inclusion of microstrategy in Nasdaq-100 signals is a broader acceptance of digital assets, it also highlights the risks associated with its unique business model. Analysts at B. Riley noted that the increase in the trade volume after inclusion could reinforce the multiple evaluation of the company. However, dependency on Bitcoin makes the company particularly sensitive to price volatility. Historically, MicroStrategy’s actions exceeded Bitcoin during bulls, but suffered disproportionate declines during bear periods.
For investors, adding microstrategy to important ETFs like Research QQ Trust can create opportunities and challenges. On the one hand, the institutional fund entry could support the price of the company’s shares and encourage new Bitcoin purchases. On the other hand, investors are more exposed to Bitcoin price movements, which remain unpredictable. As Mark Palmer’s analysis points out, MicroStrategy’s software operations are playing an increasingly insignificant role in its evaluation, further strengthening its future on the path of Bitcoin.
Despite the risks, Saylor and MicroStrategy continue to double in Bitcoin, positioning the company as a leader in corporate cryptographic adoption. With political support for a Bitcoin reserve gaining traction and institutional interest in increasing digital assets, the inclusion of Nasdaq-100 from MicroStrategy could pave the way for further integration of Bitcoin into financial markets.
As Saylor said, “Maybe you’ll buy it before it’s too late.” For investors and decision makers, the MicroStrategy journey offers a warning and opportunity in the changing landscape of digital assets.
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