Author: Luo Tuo Finance
The market last week was turbulent.
On the policy front, everything is thriving, with expectations of interest rate cuts strengthening and Trump's overtures still ongoing. But in terms of news, some are happy and some are worried. First, the panic caused by Google's quantum computer, then Microsoft's vote against a Bitcoin investment proposal, briefly cooling the market's FOMO, with mainstream currencies stagnating and Altcoins experiencing a major setback; but on the other hand, MicroStrategy was successfully included in the Nasdaq 100 index last weekend, adding fuel to the market again.
From the current perspective, with the backdrop of the impending December rate cut, market sentiment remains high, and the price support zone is gradually rising. But in terms of technology companies, the divergence in the path of Bitcoin is still ongoing.
On December 14, according to the official Nasdaq, 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 of over $98 billion. The other companies added include data analytics company Palantir Technologies, Taser manufacturer Axon Enterprise, while gene sequencing equipment company Illumina, AI server manufacturer Super Micro Computer and vaccine manufacturer Moderna have been removed, and the new index will take effect before the market opens on December 23.
In fact, a few days before the official announcement, Crypto Briefing had reported on this news, which later led to a vote on Polymarket on whether the index would be officially included. It was precisely because of this that the market did not show a significant upward trend when the news was first confirmed, but rather a slight fluctuation in mainstream currencies due to the selling of the news.
But as of today, in line with the high probability of an interest rate cut, the market has started to rise, with Bit breaking through $10,600 and hitting a new high, while Ethereum has also broken through $4,000, and the crypto sector has risen across the board, with the RWA sector leading the way with a 7.23% increase, and the long-dormant Non-Fungible Token sector also rising 7.06%.
Why does the Nasdaq 100 index have such great appeal? From the introduction, the Nasdaq 100 index was established in 1985 and has a long history. It is a selection of the 100 largest and most influential stocks listed on the Nasdaq exchange, concentrated in the technology, consumer, medical, industrial and communication sectors, with technology stocks as the main focus. Unlike the S&P 500 and the Nasdaq Composite Index, the Nasdaq 100 index only selects non-financial companies, with no financial institutions in the constituent stocks.
Currently, the index covers many well-known technology companies, such as Apple, Microsoft, Google, Amazon, Tesla, Meta, Nvidia, and Intel. In terms of performance, the Nasdaq 100 index has seen a doubling in gains over the past 10 years compared to the S&P 500 index, with significant high-yield and high-volatility characteristics. This year, the Nasdaq 100 index has risen by more than 30% due to the rise in the technology sector.
Over the years, many large investors have been fond of this index, notably the Invesco QQQ Trust Fund, with the Nasdaq 100 index as the tracking benchmark, and the fund's assets have reached $320 billion. According to a report by Bloomberg analyst James Seyffart, there are about $451 billion in ETFs globally that directly track the Nasdaq 100 index, and when the index hits a new high, global ETFs will buy at least $22 billion, purchasing 19 different stocks, and by this standard, about $2.1 billion in new capital will flow into MicroStrategy.
It can be seen that while the Nasdaq 100 index is not as well-known as the S&P 500 and other comprehensive indices, it still has a relatively high profile and recognition in the traditional financial world, and MicroStrategy, as the first crypto component stock to be included in the index, undoubtedly reflects the growing influence of the crypto sector, not only expanding the investment channels, but also marking a watershed for crypto companies entering the traditional financial world. The inclusion of the index has profound significance for both individual stocks and the crypto sector.
As for why it was able to be included in the index, the reason is quite direct - market capitalization is paramount. The inclusion mechanism of the Nasdaq 100 index is relatively loose, including being ranked in the top 100 by market capitalization, with an average daily trading volume of at least 200,000 shares, but there is no clear requirement for profitability.
In terms of MicroStrategy itself, since it started buying Bit in 2020, it has become the star representative of crypto companies on Wall Street under the leadership of its aggressive crypto supporter founder Michael Saylor. In terms of business model, MicroStrategy, which was originally founded as a BI software company, is now completely focused on Bit, with its valuation model dependent on the market value premium rate, financing through equity dilution to increase its BTC holdings, and raising the BTC holdings per share to drive up the company's market value. In simple terms, it is by designing the allocation ratio between equity and Bit, and using bonds and stock sales to buy Bit, and then realizing capital operation through the appreciation of Bit.
This year, MicroStrategy has issued over $6 billion in convertible bonds to raise money to buy Bit, and as of December 8, 2024, MicroStrategy has acquired 423,650 BTC at a cost of about $25.6 billion, at an average price of $60,324 per Bit, making it the publicly traded company with the largest Bit holdings in the world.
Against the backdrop of the rise in Bit value, MicroStrategy has also soared, with its stock price up over 500% this year alone, reaching a high of $543, with trading volume even surpassing that of tech giants Nvidia and Tesla at times. Currently, MicroStrategy's market capitalization is close to $98 billion, ranking among the top 100 publicly traded companies in the US.
The skyrocketing returns have caused a stir in the market, with the well-known short-selling institution Citron even targeting the company, believing its stock price premium is already too high, but MicroStrategy is still igniting a wave of strategy followers in the market. This year, Bit mining companies such as Marathon Digital, Riot Platforms, Core Scientific, Terawulf and Bitdeer have all followed MicroStrategy's example and used similar convertible bond financing to purchase Bit.
Against this backdrop, it is understandable that the influential, high-earning, high-valuation and high-market-cap MicroStrategy has been included in the 100 index. And with the increased exposure to traditional investors, its stock price still has the potential to rise further, which also means it has more capital to buy Bit, as the founder even hinted in an image on December 13 that he would buy more Bit.
It is worth noting that the inclusion in the index has also brought more controversy to the company. For example, Nasdaq clearly requires non-financial companies, but although MicroStrategy is labeled as a tech company, it is essentially a Bit investment company that hoards and speculates on Bit, or more like a Bit ETF, with the founder even claiming that MicroStrategy will become a "Bit bank".
On this, Michael Lebowitz, a portfolio manager at RIA Advisors, directly stated that "this is essentially a company that would die without Bit." The financial reports also show this, as according to its Q3 report, the 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, and the cumulative net loss for the first three quarters of fiscal 2024 was $496 million. And from the software business, Q3 software business total revenue was only $116.1 million, down 10.3% year-on-year.
But on the positive side, the FASB fair value accounting rule has officially taken effect today, under which companies can now record Bit at the total appreciation price rather than the purchase price, giving crypto companies like MicroStrategy more room for operation. It can be foreseen that in the February earnings season next year, the vast majority of crypto companies will have a more impressive performance.
Although there are doubts, the market's expectations are even further away. Due to the nature of the company, MicroStrategy's journey to the 100 index may not be long-lasting. Bloomberg analyst James Seyffart said that ICB may choose to reclassify MicroStrategy as a financial stock during the next change period in March. But after completing the small Nasdaq target, the more broad-based S&P 500 has become the next milestone that the market hopes MicroStrategy will move towards. The S&P 500 is more tolerant of company attributes, but sets a higher threshold for profitability, requiring the sum of the last four consecutive quarters' profits to be greater than zero. Although there is a divergence with MicroStrategy, the market still has some hope based on the new government and new accounting standards.
After solving the high premium problem, Microsoft poured cold water on the market.
Before the news of MicroStrategy's index inclusion, on December 11, Microsoft made a final vote on the proposal to "include Bit in the company's balance sheet". As predicted earlier, although Michael Saylor tried to persuade Microsoft shareholders to support this decision with an impassioned three-minute speech, experts still believe that it cannot be guaranteed that investing in Bit will increase the return on the investment portfolio. Finally, as the board had previously expressed, Microsoft's Deputy General Counsel Keith Dolliver said in the webcast of the shareholders' meeting that the proposal was officially rejected.
Based on this case, Amazon's similar proposal in April will also likely be rejected. Affected by this, Bit once fell below $95,000. In fact, the old saying is that for well-known tech giants with huge cash holdings, volatility is a key factor to consider. Most tech giants adopt a conservative and stable financial strategy when investing, rather than pursuing volatile risk-return. Compared to such returns, strategic acquisitions and continuous R&D investment are obviously more in line with the long-term values of tech giants. In addition, tech giants pay more attention to social effects, while the huge energy consumption brought by Bit and other Altcoins is exactly contrary to the green concept advocated by the giants, and may even bring certain regulatory risks, which is also one of the reasons why giants are unwilling to try.
It is undeniable that the holding of Bit by tech companies has become a trend. According to DL news data, so far, about 144 companies have Bit on their balance sheets. However, in terms of the attitude of tech companies towards Bit, there is a clear division, mainly divided into three paths: one is the aggressive representative MicroStrategy, which directly builds a business around Bit, and the imitators are also mostly Altcoin companies; one is the conservative giants such as Microsoft and Amazon, pursuing stability and safety, taking a wait-and-see attitude, and not easily getting involved; and the other is in the middle, choosing to hold Bit, all with their core business as the center, but the attitudes are also different, or they see Bit as part of asset allocation, such as Tesla and SpaceX led by Musk, Tesla has already held 9,720 Bit, or it is to hype the business, this type is mainly companies with limited business growth.
But for the time being, the divergence of attitudes of tech companies will not affect the market's enthusiasm. Although the giants remain cautious, other companies pursuing returns will obviously not slow down their pace, after all, Bit strategy is simple and easy to implement, and can also obtain rare growth returns. In a broad sense, during the crypto-supportive government of Trump, in the US stock market, Bit is likely to have the same hype potential as AI, representing a new direction of appreciation. Whether it is for brand marketing, asset allocation, or to stabilize stock prices, under the possible growth spiral, many companies, especially listed companies with bottlenecks in their main business, will not easily give it up. Therefore, as the mainstreaming of Bit evolves, corporate layout will only increase, even if they are not giants, they still represent a wide and huge cash flow.
On the other hand, the Trump effect is still ongoing. On December 15, Trump said in an interview that he will establish a Bit strategic reserve similar to the oil reserve, and will "do great things in the field of Bit". As expected, with the strong policy support, the bullish trend of the Altcoin market will still be quite strong. The market has already voted, and the dense price range of Bit holders is rising from $95,000 to $100,500.
