The analyst who co-wrote this piece owns shares of MicroStrategy (MSTR).
Despite all the weird memecoins and degen behavior in 2024, ETFs are in the running for story of the year in cryptocurrency investing.
And that story — which began when bitcoin and ether exchange-traded funds debuted to great fanfare — might not be over. After a sixfold surge in its stock price this year, Michael Saylor’s bitcoin (BTC) investment firm MicroStrategy (MSTR) looks poised to join one of the biggest exchange-traded funds around, the $312 billion Invesco QQQ ETF (QQQ).
That fund tracks the Nasdaq-100 Index. Every December, Nasdaq shakes up the membership list for that benchmark, which then filters into the Invesco fund (which copies Nasdaq’s decisions exactly). The Nasdaq-100, roughly speaking, tracks the 100 largest non-financial companies listed on the Nasdaq exchange. There are other eligibility criteria that must be met — and MicroStrategy checks those boxes.
“The index is passive and rules-based and it should just follow the rules. The market is indicating that MSTR belongs in the index and thus the ETF, and therefore it should be added,” said James Seyffart, ETF analyst at Bloomberg Intelligence.
This conveys more than bragging rights; it’s membership in an exclusive club alongside giants like Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) in an ETF that regularly boosts daily trading volume in the tens of billions of dollars. It guarantees passive, permanent capital will flow in.
Getting added “will open up flows to a new class of investors that would not otherwise have singularly bought a stock like MSTR on their own,” said Jeff Park, head of alpha strategies at Bitwise. “Indexing, in a way, is a financial tool, like banking is a financial tool, because it is a liquidity transformation tool.”
The decision would also essentially bring more bitcoin into the index. Saylor has loaded up MicroStrategy with a $37 billion stockpile of bitcoin over the past four years, transforming his decades-old software firm into one of the largest crypto investors in the world. To conceptualize how much bitcoin that is, Bloomberg data shows that the $37 billion holdings are now worth more than Nvidia’s (NVDA) $34.8 billion (NVDA) and Tesla’s (TSLA) $33.6 billion cash and marketable securities holdings. Now, the fortunes of a prominent conventional stock index and ETF would ride to an even greater degree on bitcoin. Tesla is already in the index and holds the cryptocurrency.
“For millions of passive investors, owning ETFs like QQQ (which tracks the Nasdaq-100) will provide indirect bitcoin exposure to their portfolios through MicroStrategy’s holdings,” said Ben Werkman, founder of quant research firm NumerisX. “Since these funds are often buyers at any price, their participation has the ability to potentially exert significant upward pressure on the price of the equity.”
This is all technically theoretical at this point. Nasdaq will announce its decision on Dec. 13, with the membership shuffle taking place a week later. The company will base its decision on market data as of last Friday.
Among eligible companies, MicroStrategy is the 66th-biggest by market capitalization, according to Seyffart; the 75 largest companies automatically get into the 100-stock index. That likely equates to more than $1 billion of new money coming into the stock as Invesco buys shares to match MicroStrategy’s weighting in the index.
A potential wrinkle: Will the Nasdaq committee that makes this decision still consider MicroStrategy a non-financial company, said Mark Palmer, managing director of The Benchmark Co. Has it strayed too far from its software roots?
“MicroStrategy at this point meets the eligibility criteria for inclusion,” Palmer said. However, “its bitcoin acquisition strategy could make [the Nasdaq committee’s] analysis a bit less straightforward.”
If MicroStrategy does get in, the resulting impact — or lack thereof — could preview what might happen if the stock gets big enough to join the even more influential S&P 500 Index, something that could happen in early 2026, Palmer added.
Entering an index can be extremely beneficial for a publicly traded company. The question is whether the majority of returns get front-run before the inclusion or during the company’s time in the index.
When Tesla (TSLA) entered the S&P 500 on Dec. 21 2020, it traded around $200 a share. The stock had run up 10-fold since December 2019 heading into the inclusion. Tesla went on to make new highs in November 2021 at $400 a share. In other words, the best returns came before the index addition.
Nasdaq research shows outsized returns do tend to precede the stock entering the index, not after.
Even still, MicroStrategy getting added would be another step toward bitcoin becoming integrated into the conventional financial system.
Will Canny contributed reporting to this story.