Written by: Tuo Luo Finance
Last week's market experienced ups and downs.
On the policy front, everything is flourishing, with strengthened expectations for interest rate cuts, and Trump's favorable gestures continue. However, on the news front, while some are happy, others are worried. First, Google's quantum computer sparked panic, and then Microsoft's vote against the Bitcoin investment proposal briefly cooled the market's FOMO, causing mainstream currencies to dip, and altcoins to suffer sharp declines. On the other hand, MicroStrategy successfully joined the Nasdaq 100 index last weekend, reigniting the market's enthusiasm.
Currently, with the expectation of interest rate cuts in December, market sentiment remains high, and price support is gradually rising. However, among technology companies, the divergence in paths regarding Bitcoin continues.
On December 14, according to official Nasdaq sources, MicroStrategy (MSTR) has officially been included in the Nasdaq 100 index, becoming the 40th largest company in the index with a market capitalization of over $98 billion. Other companies added include data analytics company Palantir Technologies and gun manufacturer Axon Enterprise, while gene sequencing equipment maker 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, a few days before the official announcement, Crypto Briefing reported this news, which subsequently sparked a vote on Polymarket regarding whether the index could be formally included. Because of this, when the news was first confirmed, the market did not significantly rise, but rather experienced slight fluctuations due to sell-offs.
But as of today, with the likelihood of interest rate cuts, the market is predictably starting to rally. Bitcoin briefly broke $10,600, reaching a new high, while Ethereum also surpassed $4,000, with the crypto sector seeing an overall increase, led by the RWA sector rising 7.23%, and the long-dormant NFT sector also rising 7.06%.
Why does the Nasdaq 100 index hold such allure? According to its introduction, the Nasdaq 100 index was established in 1985 and has a long history. It consists of the 100 stocks with the largest market capitalization and influence selected from companies listed on the Nasdaq exchange, with a focus on industries such as technology, consumer goods, healthcare, industrials, and communications, primarily comprised of tech stocks. Unlike the S&P 500 or the Nasdaq Composite index, the Nasdaq 100 index only includes non-financial companies, with no financial institutions among its constituents.
Currently, this index has already included many well-known tech companies, 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 gain over the past decade, exhibiting significant high returns and high volatility characteristics. This year, influenced by the tech sector's rise, the Nasdaq 100 index has surged over 30%.
To date, many large investors have shown a keen interest in this index. Notably, the Invesco QQQ Trust Fund tracks the Nasdaq 100 index, which has grown to a scale of $320 billion. According to Bloomberg analyst James Seyffart's report, globally, approximately $451 billion in ETFs directly track the Nasdaq 100 index. When the index resets, global ETFs will buy at least $22 billion, purchasing 19 different stocks; based on this standard, approximately $2.1 billion in new funds will flow into MicroStrategy.
It can be seen that although the Nasdaq 100 index is not as well-known as broader indices like the S&P 500, it still holds a high level of recognition and credibility in the traditional financial world. MicroStrategy, as the first crypto component stock to be included in the index, undoubtedly reflects the growing influence of the crypto sector, broadening investor channels and marking a watershed moment for crypto companies entering the traditional financial world. The inclusion in the indices holds profound significance for both individual stocks and the crypto sector.
As for why it could be included in the index, the reason is quite straightforward: market capitalization trumps all. The inclusion mechanism for the Nasdaq 100 index is relatively loose, including companies ranked in the top 100 by market capitalization, with an average daily trading volume of at least 200,000 shares, but there are no explicit profitability requirements.
From MicroStrategy's perspective, since starting to buy Bitcoin in 2020, driven by the founder Michael Saylor, a staunch supporter of cryptocurrencies, it has become a star representative of crypto companies on Wall Street. In terms of business model, MicroStrategy, initially focused on BI software, has now fully centered its business around Bitcoin. The company's valuation model relies on market capitalization premium rates, financing through equity dilution to increase BTC holdings, and enhancing per-share BTC holdings to boost the company's market value. Simply put, it involves designing a distribution ratio between equity and Bitcoin, using bonds and stock sales to purchase Bitcoin, and realizing capital turnover through Bitcoin appreciation.
Since the beginning of this year, MicroStrategy has issued over $6 billion in convertible notes to raise funds to buy Bitcoin. As of December 8, 2024, MicroStrategy had acquired 423,650 BTC at an approximate price of $25.6 billion, averaging about $60,324 per Bitcoin, becoming the publicly listed company with the largest Bitcoin holdings in the world.
In the context of rising Bitcoin values, MicroStrategy has soared along with it, with its stock price surging over 500% this year alone, peaking at $543, with astonishing trading volumes, even surpassing those of Nvidia and Tesla, two prominent tech companies, at one point. Currently, MicroStrategy's market capitalization is close to $98 billion, ranking among the top 100 publicly listed companies in the United States.
The soaring returns have stirred a huge wave in the market, with well-known short-seller Citron targeting the organization, believing that its stock price premium is already too high. However, MicroStrategy continues to ignite a follow-up strategy frenzy in the market. This year, Bitcoin mining companies such as Marathon Digital, Riot Platforms, Core Scientific, Terawulf, and Bitdeer have also emulated MicroStrategy by financing Bitcoin purchases through similar convertible bonds.
In this context, it is understandable that MicroStrategy, which has significant influence, strong profit effects, and high valuation, has been included in the Nasdaq 100 index. As its 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.
It's worth noting that being included in the index has also brought more controversy to this company. For instance, the Nasdaq explicitly requires non-financial companies, while MicroStrategy, although branded as a tech company, is essentially a Bitcoin investment company engaged in hoarding and trading Bitcoin, or more accurately, resembles a Bitcoin ETF. The founder has even claimed that MicroStrategy will become a "Bitcoin bank."
In this regard, Michael Lebowitz, the portfolio manager at RIA Advisors, bluntly stated, "This is essentially a company that would die without Bitcoin." The financial report indeed shows this, as per its Q3 financial report, the cumulative revenue for the first three fiscal quarters of 2024 was $343 million, down from $372 million in the same period last year, a decrease of 7.81%. The cumulative net loss for the first three fiscal quarters of 2024 was $496 million. From the software business perspective, the total revenue from software business in Q3 was only $116.1 million, a year-on-year decrease of 10.3%.
On the positive side, the FASB fair value accounting rules officially came into effect today. Under the new accounting rules, companies can record Bitcoin at its total appreciated value rather than the purchase price, providing more operational flexibility for crypto companies like MicroStrategy. It can be anticipated that in the financial reporting season in February next year, the vast majority of crypto companies will show more impressive performance.
Despite the skepticism, the market's expectations are even greater. Due to the company's nature, MicroStrategy's journey in the Nasdaq 100 index may not be long-term. Bloomberg analyst James Seyffart indicated that 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 broader S&P 500 has become the next milestone that the market hopes MicroStrategy will reach. The S&P 500 is more lenient regarding company attributes but sets higher standards for profitability, requiring that the total profits of the last four consecutive quarters must be greater than zero. Although there is a divergence with MicroStrategy, the market still holds some hope based on the new government and new accounting standards.
On one hand, this solved the high premium issue, while on the other hand, Microsoft dampened the market's enthusiasm.
Before MicroStrategy's index inclusion was announced, on December 11, Microsoft made a final vote on the proposal to "incorporate Bitcoin into the company's balance sheet." Similar to previous predictions, despite Michael Saylor's three-minute impassioned speech attempting to persuade Microsoft shareholders to support this decision, experts still believe that investing in cryptocurrencies cannot guarantee improved portfolio returns. Ultimately, as the board had previously indicated, Microsoft's Deputy General Counsel Keith Dolliver stated during the live stream of the shareholders' meeting that the proposal was formally rejected.
Based on this case, Amazon's similar proposal in April will also likely be rejected. As a result, Bitcoin briefly fell below $95,000 at that time. In fact, it is often said that for well-known tech giants with vast cash reserves, volatility is a key factor to consider. Most tech giants adopt conservative and stable financial strategies when investing, rather than pursuing the high-risk, high-reward nature of volatile investments. Compared to such returns, strategic acquisitions and continuous R&D investment are clearly more aligned with the long-term values of tech giants. Additionally, tech giants focus more on social effects, while the high energy consumption associated with Bitcoin and other crypto assets contradicts the green ideals they promote, potentially bringing about regulatory risks, which is one reason why these giant companies are reluctant to experiment.
It cannot be denied that tech companies holding Bitcoin has become a trend. According to data from DL News, so far, about 144 companies hold Bitcoin on their balance sheets. However, the attitudes of tech companies towards Bitcoin show a clear divergence, mainly divided into three paths: one is the aggressive representative MicroStrategy, which builds its business directly around Bitcoin, with followers mainly being crypto companies; another type is conservative giants like Microsoft and Amazon, which pursue stability and safety, maintaining a wait-and-see attitude and are unlikely to venture easily; and the third type lies in the middle ground, choosing to hold Bitcoin while centering on their core businesses, but their attitudes vary, either viewing Bitcoin as part of asset allocation, like Tesla and SpaceX led by Musk, which currently holds 9,720 BTC, or using it for business-related speculation, mainly among companies with limited business growth.
However, currently, the divergent attitudes of tech companies do not dampen the market's fervent sentiment. Although the giants remain cautious, other enterprises pursuing returns clearly will not slow down, as Bitcoin strategies are simple to implement and can yield rare growth returns. Broadly speaking, under Trump's crypto-supportive government, Bitcoin is likely to possess speculative potential on par with AI in the US stock market, representing a new direction for value enhancement. Whether for brand marketing, asset allocation, or stabilizing stock prices, in the potential growth spiral, many companies, especially those facing bottlenecks in their core businesses, will not easily abandon it. Therefore, as the mainstreaming of crypto evolves, corporate layouts will only increase, even if they are not giants, they still represent a vast cash flow.
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 oil reserve and would do some great things in the "cryptocurrency field." As expected, with strong policy support, the bullish sentiment in the crypto market remains quite strong. The market has already given its vote, and the dense price range for Bitcoin holders is rising from $95,000 towards $100,500.
