LONDON: MicroStrategy shares briefly surged on Monday before faltering to end nearly unchanged, after the software company and bitcoin stockpiler was selected to join the tech-heavy Nasdaq 100 index, further brightening the prospects of the stock.
The US$25.7 trillion index that houses the largest non-financial companies will now gain indirect exposure to bitcoin via MicroStrategy, which holds US$44 billion worth of the digital currency on its balance sheet, about 2 per cent of the total supply of the world's largest cryptocurrency.
The prospect of more buying from funds that track the Nasdaq 100 could further boost MicroStrategy's stock that has surged nearly 550 per cent this year alongside a jump in the bitcoin price.
Its share price rose as much as 7 per cent on Monday before running out of steam to close 0.042 per cent lower.
It could be "the start of a looping cycle of capital that could potentially drive up the spot BTC price," said Matthew Dibb, chief investment officer at cryptocurrency asset manager Astronaut Capital.
"ETFs such as QQQ and many others would buy MicroStrategy to mirror holdings of the index, therefore driving up the price, and in turn, allowing MicroStrategy to purchase more BTC through debt, bond and equity offerings."
The fifth largest U.S. exchange-traded fund Invesco QQQ Trust tracks the Nasdaq 100 and has US$328 billion in assets under management, according to data analytics company VettaFi.
Bitcoin surged to a record high above US$107,000 on Monday after President-elect Donald Trump suggested he plans to create a U.S. bitcoin strategic reserve similar to its strategic oil reserve.
MicroStrategy's shares have gained 3,200 per cent since adopting bitcoin as its treasury asset in 2020 under the leadership of co-founder Michael Saylor.
The company has more than doubled its bitcoin holdings this year through convertible note offerings and share sales. It reported a net loss of US$340 million in the three months ended Sept. 20, its third consecutive quarterly loss.
"MicroStrategy's bitcoin strategy is a long-term, high-conviction 'buy and hold' strategy," said Bernstein analyst Gautam Chhugani.
The company's market capitalisation rose to over US$100 billion as its share price climbed, more than twice the value of its bitcoin stockpile. At the close it was valued at almost US$98 billion.
Bitcoin miner Riot Platforms and some small biotech firms including Enlivex Therapeutics and Hoth Therapeutics have also decided to allocate portions of their cash to bitcoin.
"Longer term, this is a huge milestone for crypto and we are bound to hear the voices, both bulls and bears, get a lot louder talking about MicroStrategy and Saylor in the months to come," Dibb said.
Short sellers, or investors betting against MicroStrategy's shares, have lost a total of US$9.7 billion since the beginning of the year.
Other entrants to the Nasdaq 100 include Palantir and Axon Enterprise, Nasdaq said late on Friday, replacing Illumina, Super Micro and Moderna . The reconstituted index will begin trading on Dec. 23.