Tech companies’ journey to Bitcoin: MicroStrategy reaches milestone

Last week, the market was full of ups and downs.

Everything was thriving on the policy side, expectations of rate cuts were increasing, and Trump's overtures were still continuing. But on the news side, some people were happy while others were worried. First, Google's quantum computer caused panic, and then Microsoft voted down the Bitcoin investment proposal, which briefly cooled the market's FOMO. Mainstream currencies were stuck, and altcoins suffered a heavy blow; but on the other hand, MicroStrategy was successfully included in the Nasdaq 100 Index last weekend, which added fuel to the market again.

From the current perspective, with the upcoming interest rate cut in December, market sentiment is still high, and the price support band is gradually rising. But from the perspective of technology companies alone, the path differentiation for Bitcoin continues.

On December 14, according to Nasdaq's official display, MicroStrategy (MSTR) has been officially included in the Nasdaq 100 Index, becoming the 40th largest company in the Nasdaq 100 Index with a market value of more than US$98 billion. Also added are data analysis company Palantir Technologies and Taser manufacturer Axon Enterprise, while gene sequencing equipment manufacturer Illumina, AI server manufacturer Super Micro Computer and vaccine manufacturer Moderna have been 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 the news, which subsequently triggered a vote on whether the index could be officially included on Polymarket. It is precisely because of this that the market did not rise significantly at the beginning of the confirmation of this news. On the contrary, the mainstream currencies fluctuated slightly due to the selling of news.

But today, with the fundamentals of a high probability of interest rate cuts, the market has started to rise as expected. Bitcoin broke through 10,600 in a short period of time, setting a new high, and Ethereum also broke through 4,000 US dollars. The encryption sector rose across the board, with the RWA sector leading the rise by 7.23%, and the long-dormant NFT sector also rose by 7.06%.

Why is the Nasdaq 100 Index so attractive? From the introduction, the Nasdaq 100 Index was established in 1985 and has a long history. It is the 100 stocks with the largest market value and influence selected by the Nasdaq Exchange based on the listed companies in the exchange. The stocks are concentrated in industries such as technology, consumption, medical care, industry and communications, with technology stocks as the main ones. Unlike the S&P 500 and Nasdaq Composite Index, the Nasdaq 100 Index only selects non-financial companies, and there are no financial institutions among its constituent stocks.

Currently, the index has covered 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 doubled its growth in the past 10 years compared to the S&P 500 Index, and has significant high-yield and high-volatility characteristics. This year, affected by the rise of the technology sector, the Nasdaq 100 Index has risen by more than 30%.

Since its development, many large investors have favored the index. It is worth noting that the Invesco QQQ Trust Fund, which tracks the Nasdaq 100 Index, has a size of $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. When the index is refreshed again, global ETFs will buy at least $22 billion to buy 19 different stocks. According to this standard, about $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 the S&P 500 and other comprehensive indices, it still has a high degree of popularity and recognition in the traditional financial world. MicroStrategy, as the first crypto component stock to be included in the index, undoubtedly reflects the continued growth of the influence of the crypto field, which not only broadens the investor channel, but also marks the watershed for crypto companies to enter the traditional financial world. Whether it is for individual stocks or for the crypto sector, the inclusion of the stock index has far-reaching significance.

As for why it can be included in the index, the reason is quite direct, and the market value is overwhelming. The inclusion mechanism of the Nasdaq 100 Index is relatively loose, including the top 100 market value rankings and the average daily trading volume of stocks must be at least 200,000 shares, but there is no clear provision for profitability.

From MicroStrategy itself, since it began buying Bitcoin in 2020, it has become a star representative of crypto companies on Wall Street, driven by its founder Michael Saylor, a radical crypto supporter. In terms of business model, MicroStrategy, which originally started as a BI software, now focuses entirely on Bitcoin. The company's valuation model relies on the market value premium rate, and increases BTC holdings through equity dilution financing, thereby increasing BTC holdings per share, thereby pushing up the company's market value. Simply put, it is to design the distribution ratio between equity and Bitcoin, purchase Bitcoin with bonds and selling stocks, and then realize capital operation through Bitcoin appreciation.

Since the beginning of this year, MicroStrategy has issued more than $6 billion in convertible notes to raise money to buy coins. As of December 8, 2024, MicroStrategy has acquired 423,650 BTC at a price of approximately $25.6 billion, or about $60,324 per Bitcoin, becoming the listed company with the most Bitcoin in the world.

Against the backdrop of rising Bitcoin value, MicroStrategy has also soared. This year alone, its stock price has risen by more than 500%, soaring to a maximum of $543, and its trading volume is even more astonishing. Its daily trading volume even surpassed Nvidia and Tesla, two of the most prosperous technology companies. At present, MicroStrategy's market value is close to $98 billion, ranking among the top 100 US listed companies by market value.

The soaring earnings have caused a stir in the market. The well-known short-selling institution Citron has targeted the institution, believing that its stock price premium is already too high, but MicroStrategy still ignites the strategy following craze in the market. This year, Bitcoin mining companies Marathon Digital, Riot Platforms, Core Scientific, Terawulf and Bitdeer have all followed MicroStrategy's example and purchased Bitcoin through similar convertible bond financing.

Against this background, it is understandable that MicroStrategy, which has a great influence, strong money-making effect, high valuation and high market value, is included in the 100 index. And with the increase in exposure to traditional investors, its stock price is still likely to rise further, which also means that it has more capital to buy Bitcoin. On December 13, the founder also sent a picture suggesting that he would buy more Bitcoin.

It is worth noting that the inclusion in the index has also caused more controversy for this company. For example, Nasdaq explicitly requires non-financial companies, and although MicroStrategy is a technology company, it is actually a Bitcoin investment company that hoards and speculates on Bitcoin, or is more similar to a Bitcoin ETF. The founder even threatened that MicroStrategy would become a "Bitcoin bank."

In response, Michael Lebowitz, portfolio manager at RIA Advisors, said bluntly, "This is essentially a company that will die without Bitcoin." The financial report does show that according to its Q3 financial report, the cumulative revenue in the first three fiscal quarters of fiscal year 2024 was US$343 million, and the cumulative revenue in the same period last year was US$372 million, a year-on-year decrease of 7.81%. In the first three fiscal quarters of fiscal year 2024, the cumulative net loss was US$496 million. From the perspective of software business, the total revenue of Q3 software business was only US$116.1 million, a year-on-year decrease of 10.3%.

But the positive thing is that the FASB fair value accounting rules officially came into effect today. Under the new accounting rules, companies can account for Bitcoin according to the total price of value-added rather than the purchase price, giving crypto companies such as MicroStrategy more room for operation. It can be foreseen that in the earnings season in February next year, most crypto companies will have more impressive performance.

Although there are doubts, the market's expectations are also farther. Due to the nature of the company, MicroStrategy's journey to the 100 index may not be long-term. Bloomberg analyst James Seyffart said that ICB may choose to reclassify MicroStrategy as a financial stock during the next change in March. But after the small goal of Nasdaq was completed, the broader S&P 500 became the next milestone that the market hoped MicroStrategy would reach. The S&P 500 is more tolerant in terms of company attributes, but sets a higher threshold for profitability, requiring the sum of profits for the last four consecutive quarters to be greater than zero. Although there is a deviation from MicroStrategy, the market still has some hope under the new government and new accounting standards.

This solved the high premium problem, but Microsoft poured cold water on the market.

Before MicroStrategy announced the inclusion of the index, on December 11, Microsoft made a final vote on the proposal to "include Bitcoin in the company's balance sheet." Similar to previous predictions, although Michael Saylor used a three-minute exciting speech to try to convince Microsoft shareholders to support this decision, experts still believe that there is no guarantee that investing in cryptocurrencies will increase the return of the portfolio. In the end, just as the board of directors had previously stated, Microsoft Deputy General Counsel Keith Dolliver said in a webcast 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. Affected by this, Bitcoin once fell below $95,000 at the time. In fact, it is a commonplace to say that for well-known technology giants with huge amounts of cash, volatility is a key link to consider. Most technology giants adopt conservative and stable financial strategies when investing, rather than pursuing volatile risk returns. Compared with such returns, strategic acquisitions and continuous R&D investment are obviously more in line with the long-term values ​​of technology giants. In addition, technology giants pay more attention to social effects, and the high energy loss brought by crypto assets such as Bitcoin happens to be contrary to the green concept advocated by the giants, and even brings certain regulatory risks. This is one of the reasons why giant companies are reluctant to try.

It is undeniable that it has become a trend for technology companies to hold Bitcoin. According to data from DL news, to date, about 144 companies hold Bitcoin on their balance sheets. However, looking at the attitudes of technology companies towards Bitcoin, there is a clear differentiation, mainly divided into three paths. One is the radical type represented by MicroStrategy, which directly builds its business around Bitcoin, and its imitators are mostly crypto companies; one is conservative giants such as Microsoft and Amazon, who pursue stability and security, take a wait-and-see attitude, and will not easily get involved; another type is in the middle ground, choosing to hold Bitcoin, all with the main business as the core, but the attitudes are also different, or they regard Bitcoin as a part of asset allocation, such as Tesla and SpaceX led by Musk, Tesla now holds 9,720 Bitcoins, or they hype for business cooperation, and this type is mainly composed of companies with limited business growth.

But for now, the divergence of attitudes among technology companies will not affect the market's enthusiasm. Although the giants remain cautious, other companies pursuing returns will obviously not slow down their angles. After all, the Bitcoin strategy is simple and easy to implement, and it can also obtain rare growth returns. In a broad sense, during the term of the crypto-supportive government led by Trump, in the U.S. stock market, Bitcoin is likely to have hype potential comparable to AI, representing a new direction of value-added. Whether for brand marketing or asset allocation, or to stabilize stock prices, under the possible growth spiral, many companies, especially listed companies whose main business encounters bottlenecks, will not easily give it up. Therefore, with the evolution of crypto mainstreaming, the layout of enterprises will only increase day by day, even if they are not giants, they still represent a wide range of huge cash flows.

On the other hand, the Trump effect is still continuing. On December 15, Trump once again stated in an interview that he would establish a strategic reserve of Bitcoin similar to oil reserves and would "do something great in the field of cryptocurrency." As expected, with strong policy support, the bullishness of the crypto market will remain quite strong. The market has voted, and the dense price band of Bitcoin holders is rising from $95,000 to $100,500.