MicroStrategy, a Bitcoin proxy, is set to join the Nasdaq 100 and heavily trade the 'QQQ' ETF.

• The Nasdaq 100 index will be welcoming MicroStrategy, which has gained popularity as a bitcoin play, on December 23.
• Automatic buyers of stocks will be created through exchange-traded funds that track the index, including Invesco QQQ Trust.
• Shares of MicroStrategy have soared more than 500% in 2024.

The Nasdaq 100 index will welcome the preferred high beta play on the price of bitcoin, potentially increasing demand for the controversial stock that has experienced a meteoric rise this year in tandem with the cryptocurrency's price.

The addition of a stock to the list of the 100 largest nonfinancial companies in the tech-focused sector will cause ETFs, including the highly popular which has $325 billion in assets, to become automatic buyers as well.

The bitcoin proxy's shares could potentially increase due to the market movement. They have already experienced a more than sixfold increase in value this year, compared to the nearly 140% gain in the same period.

The change that will take effect before the market opens on Dec. 23 was announced on Friday after the stock market closed. MicroStrategy was widely predicted as a possible candidate for membership by investors who were eagerly anticipating the index's rebalancing this week.

The inclusion of MSTR in large ETFs such as QQQ, which is the 5th largest ETF, would result in one-time fresh buying and ongoing participation in future inflows, according to Gautam Chhugani, an analyst at Bernstein, in a note this week prior to the reshuffle.

Due to the profitability of its software business, it may be difficult for the market to consider S&P 500 inclusion for 2025, as stated by Chhugani.

The Nasdaq 100 index undergoes an annual review of its constitution, with companies being chosen for inclusion primarily based on their market cap rankings on the last trading day of November, which was November 29 this year. In addition to this, the companies must also meet certain eligibility requirements related to liquidity and the free float percentage of their shares.

MicroStrategy initially sold enterprise software but has increasingly become a bitcoin holding company. The firm first added bitcoin to its balance sheet in 2020, with Michael Saylor as CEO at the time, and has been leaning into that strategy ever since. MicroStrategy now issues convertible notes to leverage its purchases, and its stock's daily trading sometimes looks like a more volatile version of bitcoin.

Despite generating less than $500 million in revenue in its previous four quarters, the company's market cap is now approximately $90 billion, as reported by FactSet. According to CNBC's "Squawk Box," Saylor views the company's function as "securitizing bitcoin."

Our main objective is to connect traditional capital markets with bonds, fixed income, equity, and options, and we utilize bitcoin as the medium to facilitate this connection within the crypto economy, as stated by Saylor, who is now the company's executive chairman.

After the U.S. presidential election, MicroStrategy started increasing its purchases of bitcoin. The election of pro-crypto President-elect Donald Trump, who promised to create a national strategic bitcoin stockpile, contributed to the rise of bitcoin to new all-time highs. MicroStrategy now owns 423,650 bitcoins, having purchased 149,880 of them in four different transactions over the past month, starting on November 11.

Activists have been advocating for bitcoin investing in shareholder meetings at companies such as Microsoft and Amazon, while mining stocks like Mara Holdings have adopted Saylor's bitcoin yield strategy.

The Nasdaq 100 will gain and remove later this month.

The Nasdaq 100 included DoorDash in its annual reconstitution, resulting in six new companies being added. Out of these six stocks, five rose on the Monday following the announcement, with an average increase of 1.21%.

—With reporting by Jesse Pound.