MicroStrategy Looks Poised to Join Influential Nasdaq-100 Index. Here’s What That Means for the Stock.

The analyst who co-wrote this piece owns shares of MicroStrategy (MSTR).

Regardless of all of the bizarre memecoins and degen conduct in 2024, ETFs are within the operating for story of the yr in cryptocurrency investing.

And that story — which started when bitcoin and ether exchange-traded funds debuted to nice fanfare — won’t be over. After a sixfold surge in its inventory value this yr, Michael Saylor’s bitcoin (BTC) funding agency MicroStrategy (MSTR) appears poised to affix one of many greatest exchange-traded funds round, the $312 billion Invesco QQQ ETF (QQQ).

That fund tracks the Nasdaq-100 Index. Each December, Nasdaq shakes up the membership record for that benchmark, which then filters into the Invesco fund (which copies Nasdaq’s selections precisely). The Nasdaq-100, roughly talking, tracks the 100 largest non-financial firms listed on the Nasdaq alternate. There are different eligibility standards that should be met — and MicroStrategy checks these bins.

“The index is passive and rules-based and it ought to simply observe the foundations. The market is indicating that MSTR belongs within the index and thus the ETF, and subsequently it needs to be added,” mentioned James Seyffart, ETF analyst at Bloomberg Intelligence.

This conveys greater than bragging rights; it is membership in an unique membership alongside giants like Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) in an ETF that repeatedly boosts day by day buying and selling quantity within the tens of billions of {dollars}. It ensures passive, everlasting capital will circulation in.

Getting added “will open up flows to a brand new class of buyers that will not in any other case have singularly purchased a inventory like MSTR on their very own,” mentioned Jeff Park, head of alpha methods at Bitwise. “Indexing, in a manner, is a monetary device, like banking is a monetary device, as a result of it’s a liquidity transformation device.”

The choice would additionally basically convey extra bitcoin into the index. Saylor has loaded up MicroStrategy with a $37 billion stockpile of bitcoin over the previous 4 years, remodeling his decades-old software program agency into one of many largest crypto buyers on this planet. To conceptualize how a lot bitcoin that’s, Bloomberg knowledge exhibits that the $37 billion holdings at the moment are value greater than Nvidia’s (NVDA) $34.8 billion (NVDA) and Tesla’s (TSLA) $33.6 billion money and marketable securities holdings. Now, the fortunes of a outstanding typical inventory index and ETF would journey to a good better diploma on bitcoin. Tesla is already within the index and holds the cryptocurrency.

“For thousands and thousands of passive buyers, proudly owning ETFs like QQQ (which tracks the Nasdaq-100) will present oblique bitcoin publicity to their portfolios by MicroStrategy’s holdings,” mentioned Ben Werkman, founding father of quant analysis agency NumerisX. “Since these funds are sometimes patrons at any value, their participation has the flexibility to doubtlessly exert vital upward stress on the value of the fairness.”

That is all technically theoretical at this level. Nasdaq will announce its resolution on Dec. 13, with the membership shuffle happening every week later. The corporate will base its resolution on market knowledge as of final Friday.

Amongst eligible firms, MicroStrategy is the 66th-biggest by market capitalization, based on Seyffart; the 75 largest firms robotically get into the 100-stock index. That possible equates to greater than $1 billion of latest cash coming into the inventory as Invesco buys shares to match MicroStrategy’s weighting within the index.

A possible wrinkle: Will the Nasdaq committee that makes this resolution nonetheless contemplate MicroStrategy a non-financial firm, mentioned Mark Palmer, managing director of The Benchmark Co. Has it strayed too removed from its software program roots?

“MicroStrategy at this level meets the eligibility standards for inclusion,” Palmer mentioned. Nevertheless, “its bitcoin acquisition technique may make [the Nasdaq committee’s] evaluation a bit much less easy.”

If MicroStrategy does get in, the ensuing affect — or lack thereof — may preview what may occur if the inventory will get large enough to affix the much more influential S&P 500 Index, one thing that might occur in early 2026, Palmer added.

Coming into an index will be extraordinarily useful for a publicly traded firm. The query is whether or not nearly all of returns get front-run earlier than the inclusion or in the course of the firm’s time within the index.

When Tesla (TSLA) entered the S&P 500 on Dec. 21 2020, it traded round $200 a share. The inventory had run up 10-fold since December 2019 heading into the inclusion. Tesla went on to make new highs in November 2021 at $400 a share. In different phrases, the very best returns got here earlier than the index addition.

Nasdaq analysis exhibits outsized returns do are inclined to precede the inventory coming into the index, not after.

Even nonetheless, MicroStrategy getting added can be one other step towards bitcoin turning into built-in into the traditional monetary system.

Will Canny contributed reporting to this story.