MicroStrategy has officially been selected for inclusion in the Nasdaq-100 Index, which will take effect before market open on Monday, December 23. This makes MicroStrategy the first crypto company to be included in the Nasdaq-100 Index.
Subsequently, MicroStrategy Chairman Michael Saylor predicted that bitcoin miner MARA is the next crypto company to be included in the Nasdaq-100 Index.
The inclusion of crypto companies in the highly selective index reflects the increasing openness of the traditional financial technology industry towards them. From listing to inclusion in the top 100 index, crypto companies may trigger a wave of imitation.
Crypto Companies Listing Boom in the US
The US remains the world's largest technology hub, and the US stock market is of great importance globally. The expansion of the crypto industry is often accompanied by US domestic listings, which helps to widely disseminate their influence. Listing on the Nasdaq provides crypto companies with positive impacts in terms of legitimacy recognition, fundraising, and liquidity.
The listing process and requirements in the US often follow high standards. Companies applying for listing are subject to very specific requirements and regulations regarding their recent years' revenue, market capitalization, market makers, corporate governance, financial reporting, and compliance review.
Since 2020, crypto companies including miners, exchanges, and crypto wallets have been listing successively. In the exchange sector, Coinbase went public on the Nasdaq in April 2021. The Japanese securities firm and crypto exchange operator Monex Group also merged its subsidiary Coincheck Group N.V. and listed on December 11.
On the miner side, companies like CleanSpark, Mara Digital Holdings, and Riot Platforms have gone public. In the crypto wallet sector, Exodus Movement listed on the NYSE on December 18.
It's worth noting that some companies initially had business unrelated to crypto, but later shifted to the crypto industry, such as Riot Blockchain and MicroStrategy.
In addition to the above-mentioned crypto companies that have already listed, there are still others preparing for listing, including bitcoin financial services company Fold, DeFi Technologies, and online brokerage eToro.
Kraken, the US crypto exchange, appointed a new CFO Stephanie in November, indicating its preparation for a listing. The CEO of Circle also expressed in an interview in October that they have long aspired to go public, and this vision remains unchanged.
Each cycle will see a number of crypto companies officially list, and by 2025, with the continuous advancement of compliance and influence, more crypto companies may list in the US.
Nasdaq-100 Index
After officially listing, the Nasdaq-100 Index becomes a further step for crypto companies to gain influence and recognition.
The Nasdaq-100 Index is a stock index launched by the Nasdaq Stock Exchange, comprising the 100 largest non-financial companies listed on the Nasdaq. This index reflects the overall market performance of these companies and is one of the key indices followed by global investors.
Being selected for the Nasdaq-100 Index means the market is satisfied with the company's market capitalization, stock liquidity, financial profitability, compliance, and other stringent criteria.
MicroStrategy has won a ticket to the index through its bitcoin accumulation strategy and impressive profitability in recent years.
Since 2020, MicroStrategy has been treating BTC as its primary reserve asset. With MicroStrategy's aggressive bitcoin purchases, and the strong performance of bitcoin in the new cycle, the company's stock price has soared. In January 2023, MSTR was only $150, but by March 2024 it reached a high of $1,999.99, with a market capitalization of tens of billions of dollars. In just over a year, its stock return exceeded 1000%. On December 18, Michael Saylor announced that MicroStrategy's financial operations this quarter generated a net profit of 116,940 BTC for shareholders, with a yield of 46.4%. Calculated at $10,000 per bitcoin, the net profit for the quarter was approximately $12.28 billion.
Not only has its stock price and profitability been impressive, but its market capitalization has also been hovering around tens of billions of dollars, making it one of the few crypto-related listed companies with a market cap exceeding $100 billion.
Furthermore, after being officially included in the Nasdaq-100 Index, MicroStrategy has also been reclassified from a financial stock to a technology stock based on its core business of "software as a service".
MicroStrategy's original main business was providing business intelligence (BI), mobile software, and cloud-based services. Its main competitors include SAP AG's Business Objects, IBM Cognos, and Oracle Corporation's BI platforms. According to its 2020 financial report, MicroStrategy's annual revenue was $480 million. Since starting to invest heavily in bitcoin in 2020, MicroStrategy has gradually been seen as a bitcoin concept stock, though its core business remains software and services.
For the crypto industry, the influence of the Nasdaq-100 Index may also inspire more companies to follow MicroStrategy's example and join the bitcoin investment ranks.
MARA, the Next Crypto Company to Join the Nasdaq-100?
Bitcoin miner MARA has become the next crypto company that may be included in the Nasdaq-100 Index.
Similar to MicroStrategy, over the past few months, MARA has raised hundreds of millions of dollars through the issuance of convertible limited notes to continuously increase its bitcoin holdings. However, being included in the Nasdaq-100 Index will not be an easy task.
Although MARA is a non-financial company with satisfactory profitability and liquidity, its market capitalization is still far behind MicroStrategy. Generally speaking, companies included in the Nasdaq-100 Index have relatively high market capitalizations, and a certain scale is required to be ranked among the top 100.
As of now, MicroStrategy's market capitalization is over $90 billion, while MARA's market capitalization fluctuates around $8 billion, a difference of more than 10 times.
To include a new company in the Nasdaq-100 Index, other companies must be removed. Although MicroStrategy is one of the three new additions, Illumina ($22.7 billion), Super Micro Computer ($19.8 billion), and Moderna ($15.7 billion) will be removed.
The market capitalizations of these three companies to be removed are all over $15 billion, more than double that of MARA, which casts a shadow on MARA's inclusion.
MARA still has a long way to go to join the Nasdaq-100 Index, but perhaps in the not-too-distant future, MARA may eventually be selected based on its performance data.
How Far from the S&P 500 Index?
The S&P 500 includes the 500 largest companies in the US, covering about 80% of the total US stock market value. The selection of constituent stocks is based on market capitalization, liquidity, profitability, and industry representation. The S&P 500 is considered a benchmark for the health of the US economy and the performance of large-cap stocks.
Compared to the Nasdaq-100, the S&P 500's inclusion criteria are similar in terms of high market capitalization and stock liquidity requirements. However, the Nasdaq-100 places more emphasis on the technology and innovation sectors, making it an important indicator for growth-oriented investments.
The S&P 500, on the other hand, also emphasizes financial stability and profitability, which is a relatively high standard for crypto miners and companies with a bitcoin-centric strategy.
It is well known that the crypto industry still exhibits a 4-year cyclical pattern, where companies tend to be highly profitable during bull market cycles, but may face significant negative impacts on their cash flows and operations when the market enters a bear cycle and cryptocurrency prices decline.
In summary, the inclusion criteria for the S&P 500 may be overall higher, as it not only considers market performance, but also has strict requirements for financial health and industry diversity. The Nasdaq-100, on the other hand, is more focused on market performance and innovation, with a relatively more automated inclusion process, but for certain companies, inclusion may still signify a higher degree of market recognition.
The company meets the minimum market capitalization and trading volume standards for the S&P 500 Index, but currently does not meet other requirements: four consecutive quarters of total positive earnings.
According to Benchmark stock analyst Mark Palmer, "MicroStrategy has planned to adopt the new Financial Accounting Standards Board (FASB) guidance to account for the Bitcoin it holds on its balance sheet in the first quarter of 2025, which will immediately start reporting positive earnings."
Since launching its Bitcoin acquisition strategy in August 2020, MicroStrategy has accumulated $3.1 billion in impairment losses. In December last year, FASB issued new guidance allowing companies holding digital assets on their balance sheets to measure these assets at fair value and record changes in their fair value net income each reporting period. The new rule will take effect on January 1, 2025.
Palmer further analyzed that "MSTR is expected to see a one-time multi-billion dollar increase in quarterly net income in the first quarter of 2025, which will be equivalent to the difference between the recorded value of its Bitcoin on its books and their market value. If the net income growth proves sufficient to generate positive figures over the past 12 months, combined with MSTR's losses in the first three quarters, the company will meet the criteria for inclusion in the S&P 500 before its second rebalancing in 2025, which is scheduled for the third Friday in June."
If the market conditions remain favorable, MicroStrategy may have the opportunity to be re-included in the S&P 500 index next June, achieving a dual inclusion in the Nasdaq 100 and the S&P 500.
