According to a research paper from TD Cowen, despite its significant presence as a corporate holder of bitcoin (BTC), the large-scale acquisitions by Strategy do not seem to impact the cryptocurrency’s price appreciably.
The analysis, released on Monday, disputes a widely-held notion among critics that Strategy’s extensive purchasing activities are crucial in maintaining the price of bitcoin, suggesting that a decline in its demand would lead to a price drop. However, evidence presented in the data contradicts this perspective, according to the analysts.
A Key Player, But Not Dominant
Recently, Strategy issued an additional 1.8 million shares through its at-the-market (ATM) offering, which generated roughly $842 million in net revenue. These proceeds were utilized to buy 6,556 bitcoins, resulting in an increase of the firm’s bitcoin yield by 1% this quarter, reaching 12.1%. Nevertheless, relative to the total bitcoin market, these purchases represent a mere fraction.
TD Cowen’s analysis suggests that Strategy’s bitcoin transactions typically represent only about 3.3% of the weekly trading volume on average. While over the last 27 weeks, its total activity accounted for 8.4% of the volume—an average skewed in certain weeks where buying exceeded 20%—it’s notable that there were eight weeks where Strategy made no bitcoin purchases at all.
The researchers concluded, “In most time frames, it seems unlikely that Strategy’s purchases could have a significant, long-term effect on bitcoin prices,” according to TD Cowen analysts.
Weak Correlation Observed
Further investigation into the association between Strategy’s bitcoin acquisitions and market prices revealed a statistically insignificant correlation. The correlation coefficient between Strategy’s weekly bitcoin purchase volume and the BTC price at the end of the week was a mere 25%. A slight elevation to 28% was noted when comparing purchases to weekly price changes.
Overshadowing Miners?
Another common argument is that Strategy often buys more bitcoin than is mined during certain periods, which implies upward price pressure. While this is accurate, the analysis contends that it overlooks the actual dynamics of the bitcoin market. In the past six months, trading activities in the secondary market have greatly exceeded mining volumes, almost by 20 times. Even excluding Strategy’s purchases, secondary market activities significantly surpass new supply.
Creating Shareholder Value, Not Hype
Although Strategy’s impact on the bitcoin market may be exaggerated, the value it has generated for its shareholders cannot be overlooked. The recent transactions were estimated to produce an additional 5,281 bitcoins, leading to quarter-to-date gains nearing $600 million. Since the start of 2023, Strategy has expanded its bitcoin holdings by 306%, while its fully diluted share count has grown by only 94%, demonstrating a robust performance as it leverages bitcoin as a strategic asset.
With $1.53 billion still available in ATM capacity and board approval to issue more shares, Strategy is well-positioned to pursue its strategy without significantly disrupting the market on which it relies. “We anticipate Strategy will continue to generate a positive BTC yield going forward. Although the BTC yield may decrease as prices rise, the dollar value from incremental gains through Strategy’s Treasury Operations could be exceptionally favorable for shareholders,” the analysts noted.
