Written by: Tuo Luo Finance
The market last week experienced ups and downs.
On the policy front, everything is flourishing, expectations of rate cuts are increasing, and Trump’s favorable stance continues. But in terms of news, some rejoice while others worry. First, Google's quantum computer caused panic, and then Microsoft voted against a Bitcoin investment proposal, briefly cooling the market's FOMO, causing mainstream currencies to dip and altcoins to suffer heavy losses. However, on the other hand, MicroStrategy's successful inclusion in the Nasdaq 100 index last weekend reignited the market.
Currently, against the backdrop of an imminent rate cut in December, market sentiment remains high, with price support levels gradually rising. However, solely from the perspective of tech companies, the path divergence regarding 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 capitalization exceeding $98 billion. Other companies added include data analytics firm Palantir Technologies and 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, just a few days before the official announcement, Crypto Briefing reported on this news, which subsequently sparked a vote on Polymarket regarding whether the index could be officially included. Because of this, when the news was initially confirmed, the market did not surge significantly; instead, it experienced slight fluctuations due to selling.
However, as of today, with the strong likelihood of interest rate cuts, the market has started to rally as expected. Bitcoin briefly broke through $10,600, reaching a new high, while Ethereum also surged past $4,000. The cryptocurrency sector has seen widespread gains, with the RWA sector leading with a 7.23% increase, and the long-dormant NFT sector also rising by 7.06%.
What makes the Nasdaq 100 index so attractive? According to its introduction, the Nasdaq 100 index was established in 1985 and has a long history. It consists of the 100 largest stocks listed on the Nasdaq stock exchange based on market capitalization and influence, primarily focusing on technology, consumer, healthcare, industrial, and communication sectors, with a majority being tech stocks. Unlike the S&P 500 or the Nasdaq Composite Index, the Nasdaq 100 index only selects non-financial companies, with no financial institutions among its constituents.
Currently, this index already covers 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 growth over the past decade, exhibiting significant high returns and high volatility characteristics. This year, influenced by the rise in the tech sector, the Nasdaq 100 index has increased by over 30%.
As it has developed, many large investors have favored this index, notably the Invesco QQQ Trust Fund, which tracks the Nasdaq 100 index with a scale that has reached $320 billion. According to Bloomberg analyst James Seyffart's report, approximately $451 billion globally in ETFs directly track the Nasdaq 100 index. When the index refreshes again, global ETFs are expected to buy at least $22 billion, purchasing 19 different stocks. By this standard, about $2.1 billion 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 has a high degree of recognition in the traditional financial world. As the first cryptocurrency component stock included in an index, MicroStrategy undoubtedly reflects the growing influence of the cryptocurrency sector, not only broadening the channels for investors but also marking a watershed moment for cryptocurrency companies entering the traditional financial world. Whether for individual stocks or the cryptocurrency sector, inclusion in the index has profound significance.
As for why it can be included in the index, the reason is quite direct: 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, with an average daily trading volume of at least 200,000 shares, but there are no explicit requirements for profitability.
From MicroStrategy's perspective, since it began purchasing Bitcoin in 2020, under the push of its aggressive crypto-supporting founder Michael Saylor, it has become a star representative of crypto companies on Wall Street. Initially starting with BI software, MicroStrategy's current business focus is entirely around Bitcoin, with its valuation model relying on market capitalization premium rates. It increases Bitcoin holdings through equity dilution financing, enhancing per-share BTC holdings, thereby boosting company market value. In simple terms, it designs a distribution ratio between equity and Bitcoin, purchasing Bitcoin through bonds and stock sales, and then realizes capital operations through Bitcoin appreciation.
Since the beginning of this year, MicroStrategy has issued over $6 billion in convertible notes to raise funds for Bitcoin purchases. As of December 8, 2024, MicroStrategy has acquired 423,650 BTC at an approximate cost of $25.6 billion, at an average price of about $60,324 per Bitcoin, making it the publicly traded company with the largest Bitcoin holdings in the world.
Against the backdrop of rising Bitcoin value, MicroStrategy has also soared, with its stock price increasing by over 500% this year alone, peaking at $543. The trading volume has been astonishing, with daily trading volume at one point surpassing that of tech giants Nvidia and Tesla. Currently, MicroStrategy's market capitalization is approaching $98 billion, placing it among the top 100 US publicly traded companies by market value.
The soaring profits have caused a stir in the market, with well-known short-sellers like Citron targeting this company, believing its stock price is already overvalued. However, MicroStrategy continues to ignite a strategy-following craze in the market. This year, Bitcoin mining companies such as Marathon Digital, Riot Platforms, Core Scientific, Terawulf, and Bitdeer have all emulated MicroStrategy by raising funds through similar convertible bonds to acquire Bitcoin.
In this context, the influential, profit-driven, high-valuation and high-market-value MicroStrategy being included in the 100 index is understandable. As its exposure to traditional investors increases, its stock price still has potential for further growth, which also means it will have more capital to purchase Bitcoin. On December 13, the founder even hinted at buying more Bitcoin.
It is noteworthy that being included in the index has brought this company more controversy. For example, Nasdaq clearly requires non-financial companies, and although MicroStrategy bears the title of a tech company, it is essentially a Bitcoin investment company that hoards and speculates on Bitcoin, or more akin to a Bitcoin ETF, with the founder even claiming that MicroStrategy will become a 'Bitcoin bank.'
In response, Michael Lebowitz, a portfolio manager at RIA Advisors, bluntly stated, 'This is essentially a company that would die without Bitcoin.' The earnings report indeed reflects this, as per its Q3 report, cumulative revenue for the first three quarters of fiscal 2024 was $343 million, down 7.81% from $372 million in the same period last year, with a cumulative net loss of $496 million for the first three quarters of fiscal 2024. From the software business perspective, Q3 total revenue from software was only $116.1 million, a decrease of 10.3% year-on-year.
On a positive note, the FASB fair value accounting rules officially took effect today. Under the new accounting standards, companies can account for Bitcoin at its total appreciated value rather than its purchase price, giving crypto companies like MicroStrategy more operational flexibility. It can be anticipated that in the upcoming February earnings season, the vast majority of crypto companies will achieve more impressive performance.
Despite the skepticism, the market's expectations are even higher. Due to the nature of the company, MicroStrategy's journey in the Nasdaq 100 may not be long-term. Bloomberg analyst James Seyffart stated that ICB may choose to reclassify MicroStrategy as a financial stock during the next change period in March. However, after achieving its small goal in Nasdaq, the broader S&P 500 has become the next milestone the market hopes MicroStrategy will reach. The S&P 500 is more tolerant of company attributes, setting a higher threshold for profitability, requiring the total profit over the last four consecutive quarters to 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.
This side solves the high premium issue, while on the other hand, Microsoft has poured cold water on the market.
Before the news of MicroStrategy's inclusion in the index, on December 11, Microsoft made its final vote on the proposal to 'include Bitcoin on company balance sheets.' Similar to previous predictions, despite Michael Saylor's impassioned three-minute speech attempting to persuade Microsoft shareholders to support the decision, experts still believe there is no guarantee that investing in cryptocurrencies will enhance portfolio returns. Ultimately, as reflected in the board's previous stance, Microsoft’s Deputy General Counsel Keith Dolliver stated during the live-streamed shareholder meeting that the proposal was formally rejected.
Based on this case, Amazon's similar proposal in April is also likely to be rejected. As a result, Bitcoin at the time temporarily fell below $95,000. In fact, the old saying holds true: for well-known tech giants holding massive cash reserves, volatility is a key factor to consider. Most tech giants adopt conservative and prudent financial strategies when investing, rather than pursuing volatile risk-return profiles. Compared to such returns, strategic acquisitions and continuous R&D investments clearly align better with the long-term values of tech giants. Moreover, tech giants place greater emphasis on social impact, while the high energy consumption associated with cryptocurrencies like Bitcoin contradicts the green ideals promoted by these giants and can even bring regulatory risks, which is one reason why these large companies are reluctant to try.
It is undeniable that holding Bitcoin has become a trend for tech companies. According to data from DL News, approximately 144 companies currently hold Bitcoin on their balance sheets. However, the attitudes of tech companies towards Bitcoin show a clear divergence, primarily divided into three paths: one is the aggressive representative MicroStrategy, which directly builds its business around Bitcoin, with many imitators being crypto firms; another is conservative giants like Microsoft and Amazon, which pursue stability and safety, holding a wait-and-see attitude and are reluctant to venture lightly; a third group occupies a middle ground, choosing to hold Bitcoin while maintaining their core business, but their attitudes vary, with some viewing Bitcoin as part of asset allocation, such as Tesla and SpaceX led by Musk, which currently holds 9,720 Bitcoins, or using it to influence speculation in line with business growth, mainly consisting of companies with limited business growth.
However, currently, the divergence of attitudes among tech companies does not dampen the market's exuberant sentiment. Although giants remain cautious, other companies pursuing profits will clearly not slow down their pace, as Bitcoin strategies are simple to implement and can yield rare growth profits. Broadly speaking, during the tenure of the crypto-supporting government led by Trump, Bitcoin is likely to have speculative potential comparable to AI in the US stock market, representing a new direction for value-added growth. Regardless of whether for brand marketing, asset allocation, or stabilizing stock prices, in the potential growth spiral, many companies, especially those facing bottlenecks in their main businesses, will not easily abandon this opportunity. Therefore, with the evolution of crypto mainstreaming, businesses will increasingly expand their layouts, even if they are not giants, they still represent a broad and vast cash flow.
On the other hand, the Trump effect continues. On December 15, Trump stated in an interview that he would establish a Bitcoin strategic reserve similar to the oil reserve and would 'do great things in the field of cryptocurrency.' As expected, with strong policy support, the bullish sentiment in the crypto market is likely to remain robust. The market has already cast its vote, with the concentrated price band of Bitcoin holders rising from $95,000 towards $100,500.
