On Monday, MicroStrategy (MSTR) will join the prestigious Nasdaq 100 index, marking a remarkable achievement for the company, which, just four years ago, faced an “existential risk” of collapse. Its journey from near failure to Nasdaq inclusion is a testament to the transformative power of Bitcoin in reshaping corporate strategy. As its chairman and co-founder Michael Saylor admitted last month, the company initial Bitcoin purchase in 2020 was made “out of desperation,” but it has since turned into the cornerstone of its success.
MicroStrategy rise within the Nasdaq 100 index signals not only a potential shift in the company’s trajectory but also hints at a broader shift in the financial markets. Traditionally, the Nasdaq 100 index is reserved for the top non-financial companies, but MicroStrategy strategy has been anything but conventional. While it still classifies as a business intelligence software company, its meteoric rise has come from financial engineering, largely based on its aggressive Bitcoin acquisition strategy.
“MicroStrategy is a bitcoin securities company,” Saylor explained in an October interview. “If I want high-volatility, high-performance bitcoin equity, you have to have a company that’s 150% bitcoin.”
Today, MicroStrategy balance sheet is almost entirely dominated by Bitcoin, with its legacy software business serving as a secondary revenue stream. The company raises capital through the issuance of long-dated convertible bonds, the proceeds of which are immediately used to buy more Bitcoin. The company’s stock price, along with the convertible bonds, mirrors Bitcoin volatility, a feature that has proven highly attractive to investors in the convertible bond market.
MicroStrategy’s unique financial strategy has allowed it to raise billions by issuing bonds, and this has paid off handsomely for its shareholders, resulting in a “72.4% BTC yield” year to date. But the story doesn’t end there. The company’s inclusion in the Nasdaq 100 will fuel even greater demand for its stock.
Major exchange-traded funds (ETFs) that track the Nasdaq 100, such as the Invesco QQQ Trust, which manages $300 billion in assets, will need to adjust their portfolios to include MicroStrategy. This means at least $2.1 billion will flow into MSTR stock before the official inclusion. More significantly, MicroStrategy will now benefit from the steady stream of passive investment from funds tracking the Nasdaq 100, which will, in all likelihood, go toward further Bitcoin purchases. As Jeff Park, Head of Alpha Strategies at Bitwise Invest, put it, “All of you own Bitcoin now, whether you know it or not, planned to or not, like it or not.”
MicroStrategy’s growing dominance in the Nasdaq 100 comes with larger implications. The company’s willingness to issue more stock and buy Bitcoin means that it will continue to capture a larger share of index flows over time. Essentially, MicroStrategy is using a strategy that could be described as a “vampire attack” on the stock market. Through stock issuance, convertible bond offerings, and passive flows from index funds, MicroStrategy is not only growing its balance sheet but also absorbing capital from the bond market and index investors, all while taking more Bitcoin off the market.
This strategy, which relies on the scarcity and volatility of Bitcoin, has proven to be both profitable and innovative. If this success continues, it could inspire other companies to adopt similar strategies, making Bitcoin one of the most sought-after assets globally. In this new world, the only way for companies to compete with MicroStrategy might just be to copy it.
