MicroStrategy (MSTR) Might See Big Flows Into the Inventory After Nasdaq-100 Itemizing

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 to be like 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 choices precisely). The Nasdaq-100, roughly talking, tracks the 100 largest non-financial corporations listed on the Nasdaq alternate. There are different eligibility standards that should be met — and MicroStrategy checks these packing containers.

“The index is passive and rules-based and it ought to simply comply with the foundations. The market is indicating that MSTR belongs within the index and thus the ETF, and due to this fact it needs to be added,” stated 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 recurrently boosts each day buying and selling quantity within the tens of billions of {dollars}. It ensures passive, everlasting capital will move 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,” stated Jeff Park, head of alpha methods at Bitwise. “Indexing, in a approach, is a monetary software, like banking is a monetary software, as a result of it’s a liquidity transformation software.”

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 information exhibits that the $37 billion holdings at the moment are price 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 larger diploma on bitcoin. Tesla is already within the index and holds the cryptocurrency.

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

That is all technically theoretical at this level. Nasdaq will announce its choice on Dec. 13, with the membership shuffle going down per week later. The corporate will base its choice on market information as of final Friday.

Amongst eligible corporations, MicroStrategy is the 66th-biggest by market capitalization, based on Seyffart; the 75 largest corporations mechanically get into the 100-stock index. That probably equates to greater than $1 billion of recent 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 choice nonetheless think about MicroStrategy a non-financial firm, stated 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 stated. Nevertheless, “its bitcoin acquisition technique might make [the Nasdaq committee’s] evaluation a bit much less simple.”

If MicroStrategy does get in, the ensuing influence — or lack thereof — might preview what would possibly 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.

Getting into an index will be extraordinarily useful for a publicly traded firm. The query is whether or not the vast majority 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 perfect returns got here earlier than the index addition.

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

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

Will Canny contributed reporting to this story.