MicroStrategy is getting ready to possibly join the Nasdaq-100 Index. If this happens, it will also be included in the Invesco QQQ ETF, which is worth $312 billion. This addition could increase the index's exposure to bitcoin.
Experts believe that this membership will attract a new group of investors. These investors might not have bought MicroStrategy (MSTR) shares on their own.
In 2024, while many memecoins are making headlines, ETFs are emerging as a significant trend in cryptocurrency investing. The buzz began when bitcoin and ether ETFs launched. Now, after a sixfold increase in its stock price this year, MicroStrategy is on the brink of joining the well-known Invesco QQQ ETF.
The QQQ ETF tracks the Nasdaq-100 Index. This index features the 100 largest non-financial companies on the Nasdaq exchange. MicroStrategy meets the necessary criteria for membership.
James Seyffart, an ETF analyst at Bloomberg Intelligence, said, “The index is passive and rules-based. It should follow the rules. The market suggests that MSTR belongs in the index, so it should be added.” This inclusion would provide more than just bragging rights; it would ensure a steady flow of capital, as ETFs generally attract significant trading volumes every day.
Adding MicroStrategy to the index would also mean more bitcoin representation. Over the past four years, Saylor has built a bitcoin portfolio worth $37 billion for MicroStrategy. This makes the company one of the largest cryptocurrency investors in the world. Bloomberg data shows that MicroStrategy’s bitcoin holdings now exceed the cash reserves of both Nvidia and Tesla.
Ben Werkman, founder of NumerisX, pointed out that owning ETFs like QQQ will give passive investors indirect exposure to bitcoin through MicroStrategy's assets. Since these funds often buy at any price, their involvement could push MicroStrategy's stock price higher.
The Nasdaq will announce its decision about index membership on December 13. The changes will take effect the following week. This decision will rely on market data from the previous Friday. Currently, MicroStrategy ranks as the 66th largest company by market capitalization among eligible firms. The 75 largest companies automatically enter the index, which could lead to over $1 billion in new investments for MicroStrategy.
However, there is a potential complication. The Nasdaq committee may question whether MicroStrategy still qualifies as a non-financial company due to its significant shift toward bitcoin investments. Mark Palmer, managing director of The Benchmark Co., stated, “MicroStrategy meets the eligibility criteria for inclusion. However, its bitcoin acquisition strategy could complicate the committee's analysis.”
Joining an index can greatly benefit a publicly traded company. But the timing of returns can vary. Historical data shows that significant returns often occur before a company enters an index rather than afterward. For example, when Tesla joined the S&P 500 on December 21, 2020, its stock price was around $200. It had surged tenfold since December 2019 and reached new highs in November 2021.
Research from Nasdaq indicates that outsized returns typically happen before a stock enters the index. Still, MicroStrategy's potential addition would be a notable step toward integrating bitcoin into the traditional financial system.