MicroStrategy’s Bitcoin Play Raises Questions About Nasdaq 100 Inclusion

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(Bloomberg) — Michael Saylor’s MicroStrategy Inc. checks all of the containers for inclusion within the Nasdaq 100 Index, a improvement that might set off purchases of the shares by the $451 billion value of exchange-traded funds around the globe that straight observe the benchmark.

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But market watchers are entertaining the chance it will get snubbed within the index’s annual reshuffling on Friday for one easy cause: MicroStrategy has morphed right into a levered guess on Bitcoin connected to a small software program firm that many say has no enterprise being among the many 100 most-important shares on the Nasdaq.

“The concept of an index is it’s supposed to actually symbolize faithfully the physique of shares which are within the universe,” mentioned TD Cowen analyst Lance Vitanza, who has a “purchase” score on MicroStrategy. “Any giant firm that makes up a fabric portion of the Nasdaq universe must be mirrored as being within the index.”

Shares of the Tysons Nook, Virginia-based agency co-founded by Saylor have mesmerized Wall Road this 12 months by surging greater than 500% as the corporate accelerates an unconventional plan to lift capital solely to buy and maintain extra Bitcoin. It has introduced multibillion-dollar acquisitions of the cryptocurrency each Monday over the previous 5 weeks.

With the token’s value reaching all-time highs not too long ago, MicroStrategy now holds greater than $40 billion value of Bitcoin. However its underlying enterprise had a web lack of $340 million in third quarter of this 12 months. Nonetheless, the corporate’s $98 billion market capitalization, which might make it roughly the fortieth greatest inventory within the Nasdaq 100, is basically primarily based on its Bitcoin buy-and-hold technique, and this might issue into whether or not the inventory is added to the Nasdaq 100.

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Nasdaq may use the small dimension of MicroStrategy’s working enterprise as a cause to not add the corporate to the index, Vitanza mentioned. Nonetheless, that might be counterintuitive because the firm’s market capitalization is so giant, he added.

‘Bitcoin Treasury Firm’

MicroStrategy’s software program enterprise provides it a profit on the subject of inclusion within the Nasdaq benchmark, as monetary firms are ineligible for the Nasdaq 100. MicroStrategy has known as itself a “Bitcoin Treasury Firm,” however since its income comes from its software program enterprise, it’s labeled as a know-how firm by the Trade Classification Benchmark, making it honest recreation for the index. The ICB may select to reclassify MicroStrategy as a monetary inventory throughout the subsequent change in March, in line with Bloomberg Intelligence analyst James Seyffart.

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