Author: Tuo Luo Finance
Last week's market was tumultuous.
On the policy front, everything is flourishing, with heightened expectations for interest rate cuts, and Trump’s gestures of goodwill continue. However, on the news front, there are both joys and sorrows. First, Google's quantum computer sparked panic, followed by Microsoft voting to reject a Bitcoin investment proposal, temporarily cooling market FOMO. Mainstream currencies experienced spikes, while altcoins faced significant downturns; yet on the other hand, MicroStrategy's successful inclusion in the NASDAQ 100 index last weekend added more fuel to the market.
From the current perspective, against the backdrop of imminent interest rate cuts in December, market sentiment remains high, and the price support level is gradually rising. However, for technology companies specifically, the divergence in the path for Bitcoin is still ongoing.
On December 14, according to official NASDAQ announcements, MicroStrategy (MSTR) has officially been included in the NASDAQ 100 index, becoming the 40th largest company in the NASDAQ 100 index with a market value exceeding 98 billion USD. Other companies added include data analytics firm Palantir Technologies and Taser gun manufacturer Axon Enterprise, while gene sequencing equipment manufacturer Illumina, AI server manufacturer Super Micro Computer, and vaccine manufacturer Moderna were removed. The new index will take effect before the market opens on December 23.
In fact, days before the official announcement, Crypto Briefing reported on this news, which subsequently sparked voting on Polymarket regarding whether the index would be officially included. Due to this, when this news was confirmed, the market did not see significant increases; instead, it experienced slight fluctuations due to sell-offs.
But as of today, in conjunction with the strong likelihood of interest rate cuts, the market has predictably started to rise. Bitcoin briefly broke through 10,600, reaching a new high, and Ethereum also surpassed 4,000 USD, with the entire crypto sector experiencing a rally, led by the RWA sector rising 7.23%, while the long-dormant NFT sector also increased by 7.06%.
Why does the NASDAQ 100 index hold such great appeal? From the introduction, the NASDAQ 100 index was established in 1985 and has a long history. It selects the 100 stocks with the largest market capitalization and influence based on the listed companies on the NASDAQ exchange, with a concentration in technology, consumer, healthcare, industrial, and communication sectors, primarily focused on technology stocks. Unlike the S&P 500 and NASDAQ Composite indices, the NASDAQ 100 index only selects non-financial companies, and there are no financial institutions among its constituent stocks.
Currently, this index already covers many well-known tech giants, such as Apple, Microsoft, Google, Amazon, Tesla, Meta, Nvidia, and Intel. In terms of performance, compared to the S&P 500 index, the NASDAQ 100 index has doubled its growth over the past decade, exhibiting significant high returns and high volatility characteristics. This year, driven by the rise in the tech sector, the NASDAQ 100 index has increased by over 30%.
As of now, many large investors have shown great favor towards this index. Notably, the Invesco QQQ Trust, which tracks the NASDAQ 100 index, has grown to a scale of 320 billion USD. According to Bloomberg analyst James Seyffart's report, approximately 451 billion USD in ETFs directly track the NASDAQ 100 index. When the index refreshes, global ETFs will at least purchase 22 billion USD, buying into 19 different stocks. Based on this standard, approximately 2.1 billion USD in new funds will flow into MicroStrategy.
It can be seen that while the NASDAQ 100 index may not be as well-known as broader indices like the S&P 500, it still holds a high level of recognition and respect in the traditional financial world. MicroStrategy, as the first cryptocurrency component stock to be included in the index, undoubtedly reflects the growing influence of the crypto sector, which not only broadens investor channels but also marks a watershed moment for crypto companies entering the traditional financial world. The inclusion of stock indices has far-reaching significance for both individual stocks and the crypto sector.
As for why it can be included in the index, the reason is quite straightforward: market capitalization outweighs everything. The inclusion mechanism of the NASDAQ 100 index is relatively loose, including companies ranked in the top 100 by market capitalization and requiring an average daily trading volume of at least 200,000 shares, but there are no explicit requirements for profitability.
From MicroStrategy's own perspective, since it began purchasing Bitcoin in 2020, under the push of the aggressive crypto supporter founder Michael Saylor, it has already become a star representative of crypto companies on Wall Street. From a business model perspective, MicroStrategy, originally focused on BI software, has now completely shifted its business focus around Bitcoin. The company's valuation model relies on market capitalization premium rates, increasing Bitcoin holdings through equity dilution financing, enhancing per-share Bitcoin holdings, and thus pushing up the company's market value. In simple terms, it achieves this by designing the distribution ratio between equity and Bitcoin, purchasing Bitcoin through bonds and stock sales, and realizing capital operations through Bitcoin appreciation.
Since the beginning of this year, MicroStrategy has issued over 6 billion USD in convertible notes to raise funds for Bitcoin purchases. As of December 8, 2024, MicroStrategy had acquired 423,650 BTC at an approximate total price of 25.6 billion USD, at a price of about 60,324 USD per Bitcoin, making it the publicly traded company with the largest Bitcoin holdings globally.
In the context of rising Bitcoin values, MicroStrategy has also soared, with its stock price increasing by over 500% just this year, peaking at 543 USD, with astonishing trading volumes that even surpassed those of the two tech giants Nvidia and Tesla at times. Currently, MicroStrategy’s market value is close to 98 billion USD, making it one of the top 100 publicly traded companies in the U.S.
The soaring returns have stirred up a storm in the market, with well-known short-selling firm Citron targeting the organization, arguing that its stock price is excessively high. Nonetheless, MicroStrategy continues to ignite a strategy-following trend in the market. This year, Bitcoin mining companies like Marathon Digital, Riot Platforms, Core Scientific, Terawulf, and Bitdeer have emulated MicroStrategy by financing Bitcoin purchases through similar convertible bonds.
In this context, the inclusion of MicroStrategy—a company with significant influence, strong profit effects, and a high valuation and market value—into the 100 index is not surprising. As exposure to traditional investors increases, its stock price still has the potential for further growth, which also means it has more capital to purchase Bitcoin. On December 13, the founder even hinted at purchasing more Bitcoin by posting a picture.
It is worth noting that inclusion in the index has also brought more controversy to this company. For instance, NASDAQ clearly requires non-financial companies, and although MicroStrategy bears the title of a technology company, it is essentially a Bitcoin investment company that hoards and trades Bitcoins, or more akin to a Bitcoin ETF. The founder even boldly claimed that MicroStrategy would become a 'Bitcoin bank'.
In this regard, Michael Lebowitz, a portfolio manager at RIA Advisors, bluntly stated, 'This essentially is a company that will die without Bitcoin.' The financial report indeed reflects this, as per its Q3 report, the cumulative revenue for the first three quarters of fiscal year 2024 was 343 million USD, down from 372 million USD in the same period last year, a decrease of 7.81%, and cumulative net losses for the first three quarters of fiscal year 2024 reached 496 million USD. From the software business perspective, total revenue from the Q3 software business was merely 116.1 million USD, a year-on-year decline of 10.3%.
On a positive note, the FASB fair value accounting rule officially came into effect today. Under the new accounting rules, companies can account for Bitcoin at its total appreciated value rather than the purchase price, providing crypto companies like MicroStrategy with more operational flexibility. It can be anticipated that in the financial reporting season in February next year, the vast majority of crypto companies will exhibit more impressive performance.
Despite the skepticism, the market's expectations reach further. Due to the nature of the company, MicroStrategy's journey in the 100 index may not be long-term. Bloomberg analyst James Seyffart indicated that the ICB might choose to reclassify MicroStrategy as a financial stock during the next change period in March. However, after achieving its small goal in the NASDAQ, the more comprehensive S&P 500 has become the next milestone that the market hopes MicroStrategy will reach. The S&P 500 is more lenient in terms of company attributes but sets higher benchmarks for profitability, requiring the total profit from the last four consecutive quarters to be greater than zero. Despite discrepancies with MicroStrategy, the market still holds some hope based on the new government and new accounting standards.
On one hand, the high premium issue is resolved, while on the other hand, Microsoft has poured a bucket of cold water on the market.
Before the news of MicroStrategy's index inclusion was announced, on December 11, Microsoft made its final vote regarding the proposal to 'include Bitcoin in the company’s balance sheet.' Similar to previous predictions, although Michael Saylor attempted to persuade Microsoft shareholders to support this decision with an impassioned three-minute speech, experts still believe that there is no guarantee that investing in cryptocurrencies will enhance portfolio returns. Ultimately, as indicated by the board's previous stance, Microsoft’s Vice President and General Counsel Keith Dolliver stated during the live broadcast of the shareholders' meeting that the proposal was officially rejected.
Based on this case, Amazon's similar proposal in April is also likely to be rejected. As a result, Bitcoin once fell below 95,000 USD at that time. In reality, it is a well-known fact that for well-known technology giants holding large amounts of cash, volatility is a key factor to consider. Most tech giants employ conservative and stable financial strategies when investing, rather than pursuing highly volatile risk-return scenarios. Compared to such returns, strategic acquisitions and continued R&D investments align more with the long-term values of technology giants. Moreover, tech giants place more emphasis on social impact, while the high energy consumption associated with Bitcoin and other crypto assets contradicts the green ideals promoted by these giants and could even lead to regulatory risks, which is one of the reasons these giant companies are reluctant to experiment.
It is undeniable that holding Bitcoin has become a trend among tech companies. According to data from DL News, approximately 144 companies currently hold Bitcoin on their balance sheets. However, looking at the attitudes of tech companies towards Bitcoin, there is a clear divergence into three paths: one is the aggressive representative MicroStrategy, which establishes its business directly around Bitcoin, with followers mostly being crypto companies; another is conservative giants such as Microsoft and Amazon, who pursue stability and safety, holding a wait-and-see attitude and will not easily engage; and the last group is in the middle ground, choosing to hold Bitcoin while centering on their main business, but with differing attitudes, either viewing Bitcoin as part of asset allocation, like Tesla and SpaceX led by Musk, which currently holds 9,720 Bitcoins, or using it to influence speculation due to business growth constraints, primarily made up of companies limited in their main business.
However, currently, the divergent attitudes of technology companies will not affect the market's exuberant mood. Although giants remain cautious, other profit-seeking companies are clearly not slowing down, after all, Bitcoin strategies are simple and easy to implement and can yield rare growth returns. Broadly speaking, under the leadership of a pro-crypto government led by Trump, in the U.S. stock market, Bitcoin is likely to have speculative potential on par with AI, representing a new direction for value addition. Whether for brand marketing, asset allocation, or stabilizing stock prices, many companies, especially publicly listed companies facing bottlenecks in their main businesses, will not easily abandon this opportunity. Therefore, with the evolution of crypto mainstreaming, corporate layouts will only increase, representing a vast pool of cash flow even if they are not giants.
On the other hand, the Trump effect is still ongoing. On December 15, Trump stated in an interview that he would establish a Bitcoin strategic reserve similar to the Strategic Petroleum Reserve and would 'do great things in the field of cryptocurrencies.' As anticipated, supported by strong policies, the bullish sentiment in the crypto market remains quite robust. The market has already cast its vote, with dense price levels for Bitcoin holders rising from 95,000 USD towards 100,500 USD.
