The Nasdaq officially announced after the market closed on Friday that the listed company MicroStrategy has finalized its inclusion in the Nasdaq 100 index on December 23.
MicroStrategy cleverly combines debt and equity financing to support its large-scale bitcoin purchase plan:
Debt Financing: The company raises funds at low interest rates by issuing convertible bonds and senior secured bonds, fully leveraging its higher credit rating.
Equity Financing: Raising funds by issuing new shares, although this dilutes shareholder equity to some extent, the continuous rise in bitcoin prices has significantly increased the value per share, effectively balancing the dilution impact.
MicroStrategy has cumulatively held 423,650 bitcoins through convertible bonds and equity financing, valued at approximately $42 billion, accounting for 2% of the total bitcoin supply.
Since launching its bitcoin purchase strategy in August 2020, MicroStrategy has treated BTC as its primary reserve asset. As MicroStrategy aggressively buys, its stock price has also surged, thanks to the strong performance of bitcoin in the new cycle. In January 2023, MSTR's stock price was only $150, and by March 2024, it soared to a maximum of $1999.99, with a market capitalization in the hundreds of billions, achieving a stock price return of over 1000% in just over a year. Michael Saylor stated today on X that MSTR's Bitcoin standard has risen by 490% year to date.
After MicroStrategy officially joins the Nasdaq 100 index, it will further enhance investor confidence in MicroStrategy's stock, leading to an increase in the company's stock price and attracting more institutions and investors to buy the company's bonds and stocks, thereby providing more funds for purchasing BTC.
Buy bitcoin → Stock price rises → Borrow to buy more bitcoin → Bitcoin rises → Stock price continues to rise → Incurs more debt → Buy more bitcoin → Stock price keeps rising → Issue more shares to cash out → Buy more bitcoin → Stock price continues to rise…
Bernstein analyst Gautam Chhugani explained that this decision by Nasdaq 'will lead to MSTR being automatically included in some of the largest ETFs, such as Invesco's QQQ (the fifth largest ETF), triggering a one-time new buying spree and ongoing participation in future capital inflows.'
Bloomberg senior ETF analyst Eric Balchunas today estimated that MSTR will account for approximately 0.47% of the Nasdaq 100 index weight, becoming the 48th largest constituent stock.
This weight equates to all index-tracking ETFs purchasing approximately $2.1 billion of MSTR, with these ETFs managing around $451 billion in assets. This does not include separately managed accounts (SMA) or collective investment trusts (CIT) or any active strategies, so the final amount may be slightly higher.
The Nasdaq 100 index is a stock index of the 100 largest non-financial companies listed on the Nasdaq stock market in the United States. It primarily includes companies from sectors such as technology, consumer goods, and healthcare, and is thus regarded as a representative of tech stocks. The constituents of the Nasdaq 100 do not include financial companies, which distinguishes it from other indices, such as the S&P 500.
The weight of the index is based on market capitalization, which means that companies with larger market capitalizations have a greater influence in the index. The constituents of the Nasdaq 100 include some globally recognized companies, such as Apple, Microsoft, Amazon, Google's parent company Alphabet, and Facebook's parent company Meta.
Investors typically invest in the Nasdaq 100 through ETFs (exchange-traded funds) to gain broad market exposure and the benefits of diversified investments. Due to its constituents largely being growth companies, the Nasdaq 100 has relatively high volatility, making it suitable for investors with a higher risk tolerance.
In addition to the above, the conditions for inclusion in the Nasdaq 100 index have corresponding requirements for market capitalization, stock liquidity, notoriety, and company financial profitability.
Bloomberg ETF analyst James Seyffart recently stated that ETFs tracking the Nasdaq 100 index are expected to purchase $2.1 billion worth of MicroStrategy stock, accounting for about 20% of the company's daily trading volume.
The premium issuance of shares allows MicroStrategy to have more funds to purchase bitcoin, driving up bitcoin prices, thus enhancing its net asset value and earnings per share.
Secondly, entering the Nasdaq 100 index helps to drive the market up, and the increase in market capitalization in turn pushes MicroStrategy into more indices (such as the S&P 500), leading to more related derivatives and increased trading volume, which will lower MicroStrategy's equity and debt financing costs, thereby reducing the overall debt ratio.
As of December 14 this year, data shows that MicroStrategy holds a total of 423,650 bitcoins (accounting for 2.017% of the total bitcoin supply), with a total purchase cost of approximately $25.6 billion and an average purchase price of about $60,324.
For the cryptocurrency industry, the influence of the Nasdaq 100 may also inspire more companies to follow MicroStrategy's lead and join the ranks of bitcoin investors. As more institutional investors enter the cryptocurrency market, the market demand for bitcoin may further increase, thereby driving up BTC prices.
Microstrategy Chairman Michael Saylor has stated that he wants to transform MicroStrategy into a 'Bitcoin bank.' If ICB reclassifies MicroStrategy as a financial stock, it will not qualify for the Nasdaq 100.
CZ responded on X that the summary of Microstrategy's bitcoin strategy is: buy bitcoin and hold.