On Monday, MicroStrategy (MSTR) will be added to the Nasdaq 100 stock index.
It's a remarkable achievement for the now-infamous Bitcoin treasury company, which faced a deadly “existential crisis” four years ago and made its first Bitcoin purchase “out of desperation” in 2020, says its chairman. Michael Saylor, co-founder, spoke in closing. month.
This also has a huge impact not only on the future performance of companies, but also on the very nature of the stock market.
Within the Nasdaq 100, MicroStrategy stands out from its peers. After all, while the index is limited to the top “non-financial” companies on the stock exchange, MicroStrategy has achieved its greatness through pure financial engineering while technically still being a business intelligence software company. did.
“MicroStrategy is a Bitcoin brokerage firm,” Saylor explained in an October interview. “If you want large, high-performance Bitcoin stocks, you need a company that owns 150% Bitcoin.”
MicroStrategy's balance sheet is made up almost exclusively of Bitcoin. The company's legacy software business also converts revenue into Bitcoin, but this is a negligible source of MicroStrategy's current revenue. Currently, the company primarily generates revenue by issuing long-term convertible bonds to raise funds, and each time the funds are raised, they are immediately used to purchase BTC.
These bonds experience price fluctuations that reflect the price fluctuations of the exchangeable MSTR shares, which in turn reflect the volatility of the company's underlying BTC. This volatility is so desirable for the convertible bond market that MicroStrategy was able to raise billions of dollars by selling bonds.
The company also performs standard market share issuances when the shares trade at a significant premium to the BTC it owns. Between the stock issuance and convertible debt, Saylor's execution has proven to deliver significant returns to shareholders on a BTC per share basis, generating what he calls a “72.4% BTC yield” since the beginning of the year. Ta.
But this is just the beginning. With MicroStrategy joining the Nasdaq 100, its Bitcoin returns will become even more impressive.
Popular ETFs that track indexes, such as the $300 billion Invesco QQQ Trust Series ETF, require a balance of holdings to incorporate a weighted MSTR allocation. This amounts to an immediate inflow of at least $2.1 billion into MSTR stock prior to its launch.
More importantly, MicroStrategy will now enjoy a consistent flow of capital from investors across the country who invest passively in index funds that track the Nasdaq 100. Knowing Saylor, we know what he will do with the extra money. That means buying more Bitcoin. “Whether you know it or not, plan for it or not, like it or not, you all own Bitcoin now,” Jeff Park, head of alpha strategy at Bitwise Investments, said last week on MicroStrategy. Tweeted. Consider how much of QQQ's flows MicroStrategy is entitled to.
Such flows are typically weighted based on the size of the companies included in the index. Since MicroStrategy intends to relentlessly increase its absolute size by issuing shares and purchasing BTC, it will be entitled to a larger share of index flows in the long run.
In a sense, MicroStrategy is a vampire attacking the stock market. Between equity issuances, convertible debt issuances, and passive stock market flows, MicroStrategy is draining capital from both bond markets and index investors, expanding balance sheets, rewarding shareholders, and increasing We are taking a lot of Bitcoin out of the market.
This is an amazing, profitable, and unique strategy that is only possible when centered around a rare and volatile asset like Bitcoin. Depending on how this plays out, companies may soon realize that the only way to beat MicroStrategy is to copy it, in which case Bitcoin will become one of the world's most desirable assets. It will be.
