What does it mean for Bitcoin

On Monday, MicroStrategy (MSTR) will be listed on the Nasdaq 100 stock market index.

It’s an astonishing achievement for the now-infamous Bitcoin treasury company, which faced “existential risk” of death four years ago, and for which Bitcoin was first purchased “out of desperation” in 2020. He said Its president and co-founder Michael Saylor last month.

It also has huge implications not only for a company’s future performance, but for the nature of the stock market itself.

Within the Nasdaq 100, MicroStrategy sticks out like a sore thumb from its peers. After all, the index is limited to the largest “non-financial” companies on the stock exchange, yet MicroStrategy – while still technically a business intelligence software company – achieved its greatness through pure financial engineering.

“MicroStrategy is a bitcoin securities company,” Saylor explained in an interview. October interview. “If I wanted to have high-volume, high-performing Bitcoin stocks, I would have to have a company that was 150% Bitcoin.”

MicroStrategy’s balance sheet is almost exclusively Bitcoin. Its legacy software business also converts profits into bitcoin, although this is a trivial source of current revenue for MicroStrategy. Today, the company makes money mainly by issuing long-term convertible bonds to raise funds, which are immediately used to buy Bitcoin at each increment.

These bonds experience price fluctuations that reflect the prices of the MSTR shares into which they can be converted, and these shares reflect the fluctuations of the company’s underlying currency, BTC. This volatility is highly desirable for the convertible bond market, and as such, MicroStrategy has been able to raise several billion dollars by selling its bonds.

The company also issues market benchmark shares when its shares trade at a significant premium to its BTC holdings. Between equity and convertible debt offerings, Saylor’s execution proved to result in significant accretion to shareholders on a bitcoin per share basis, producing What he calls it “72.4% BTC return” year to date.

But this is only the beginning. MicroStrategy’s inclusion in the Nasdaq 100 would make its Bitcoin returns even more impressive.

Popular ETFs that track the index, including the Invesco QQQ Trust Series ETF with $300 billion in assets under management, will need to weight their holdings to include a weighted MSTR allocation. That’s at least $2.1 billion immediately flowing into MSTR shares ahead of the launch.

More importantly, MicroStrategy will now have consistent inflows from investors across the country passively investing in index funds that track the Nasdaq 100. Knowing Saylor, we know what he would do with the extra money: buy more Bitcoin. “You all own Bitcoin now, whether you know it or not, plan it or not, like it or not.” chirp Jeff Park, Head of Alpha Strategies at Bitwise Invest regarding MicroStrategy last week. There are larger implications when considering the amount of QQQ flows MicroStrategy is entitled to.

These flows are usually weighted based on the size of the companies included in the index. Since MicroStrategy wants to relentlessly increase its absolute size by issuing shares and buying Bitcoin, it will be entitled to a larger share of index flows in the long term.

In a sense, MicroStrategy is a vampire attacking the stock market. Between stock issuances, convertible bond offerings, and negative stock market flows, MicroStrategy is draining both the bond market and index investors of their capital, growing its balance sheet, rewarding shareholders, and taking more Bitcoin out of the market.

This is a brilliant, profitable and unique strategy that can only be achieved with a rare and volatile asset like Bitcoin in the position. 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 most sought-after assets in the world.