Will MicroStrategy ETFs Get a Boost from the Nasdaq-100 Joining?

MicroStrategy MSTR, the world’s largest Bitcoin hoarder, is set to join the Nasdaq 100 index today. The move will offer the cryptocurrency more exposure in the tech-heavy market. The stock is often viewed as a Bitcoin proxy. The MSTR stock surged 11.6% on Dec. 20, though the stock posted a weekly loss of 14.4% due to less dovish Fed cues.

Nasdaq 100 Gains Indirect Bitcoin Exposure

The $25.7 trillion index, composed of the top 100 tech and non-financial companies from the larger Nasdaq Composite index, now indirectly exposes investors to bitcoin through MicroStrategy. The company holds about $44 billion worth of bitcoin, representing about 2% of the cryptocurrency's total supply. Huge exposure to Bitcoin makes MicroStrategy a unique and volatile addition to the Nasdaq 100.

Impact on ETFs Tracking the Nasdaq 100

Exchange-traded funds (ETFs) that track the Nasdaq 100 will automatically include MicroStrategy in their holdings. For example, the Invesco QQQ ETF QQQ, a popular tech-focused fund with $320 billion in assets, will now acquire shares of MicroStrategy, regardless of investor preference. Other ETFs with such exposure include Invesco NASDAQ 100 ETF QQQM and Direxion NASDAQ-100 Equal Weighted Index Shares QQQE.

MicroStrategy's Stock Surges in 2024

This landmark comes after about a 431% year-to-date rally in MicroStrategy’s stock price. Originally an enterprise software company, MicroStrategy pivoted in 2020 under its founder, Michael Saylor, who has embraced Bitcoin with firm commitment.

The company continues to acquire more Bitcoin, betting its entire business on the cryptocurrency’s future. Bitcoin is up about 120% this year due to more mainstream acceptance. The cryptocurrency has seen launches of several ETFs earlier in the year and started rallying thereon.

Moreover, President-elect Trump has plans to create a U.S. bitcoin strategic reserve similar to its strategic oil reserve, fueling the enthusiasm of crypto bulls. Crypto bulls are anticipating friendlier regulatory environment in Trump 2.0 era (read: Trump Win Fuels U.S. Stock Surge, Leveraged ETFs Soar).

China, UK, Bhutan and El Salvador are the other countries with a significant amount of bitcoins, data site BitcoinTreasuries revealed, as quoted on Reuters. Overall, MicroStrategy and Bitcoin are two interlinked plays. Although the recent addition of the MSTR stock to the Nasdaq-100 will give both a boost amid Bitcoin rallies, investors should not forget Bitcoin is a volatile play. Bitcoin was down 8.4% last week.

A Huge Shift for Public Markets

The inclusion of MicroStrategy in the Nasdaq 100 not only reflects the growing acceptance of cryptocurrency but also introduces new volatility to the index. This shift could have extensive implications for both public markets and the broader ETF sector.

But then, if you have a strong stomach for risk, you can invest in MicroStrategy-heavy exchange-traded funds (ETFs) to make some quick gains in a tax-efficient manner.

These ETFs include Bitwise Crypto Industry Innovators ETF BITQ, First Trust SkyBridge Crypto Industry & Digital Economy ETF CRPT and Schwab Crypto Thematic ETF STCE, VanEck Digital Transformation ETF (DAPP) and ProShares Big Data Refiners ETF DAT.

However, there is an ETF T-Rex 2X Long MSTR Daily Target ETF MSTU, which is an extremely risky choice but has the potential to deliver great returns if the MSTR bull rally continues. The T-Rex 2X Long MSTR Daily Target ETF seeks daily investment results, before fees and expenses, of 200% of the daily performance of MSTR. This ETF is apt for the short-term purpose (see all single stock ETFs here).

New Nasdaq 100 Entrants

Alongside MicroStrategy, Palantir PLTR (up 385.8% YTD and an AI play) and Axon Enterprise AXON (up 151% YTD and a defense play) joined the Nasdaq 100. They replaced Illumina (ILMN), Super Micro (SMCI), and Moderna (MRNA), with the reconstituted index set to begin trading on Dec. 23.

Investors should note that Palantir and Axon Enterprise appear to be more reliable investments than MicroStrategy. The addition of the former duo to the Nasdaq-100 index should provide some downside protection against the risks posed by the inclusion of MSTR.

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