TD Cowen Analysis: Strategy’s Bitcoin Purchases Have Minimal Impact on Price Action
TD Cowen analysts have examined the influence of Strategy’s bitcoin (BTC) purchases on market prices over the past six months and found that the company’s activities have little to no effect on the cryptocurrency’s price fluctuations.
A new research paper published Monday challenges the theory among some skeptics that Strategy’s large-scale bitcoin buying spree is actively supporting the digital asset’s value. The data suggests that without Strategy’s ongoing purchases, bitcoin’s price would likely not see a significant decline.
A Small Buyer in a Vast Market
Despite being one of the largest corporate holders of bitcoin, Strategy’s recent purchases of 6,556 BTC, funded by $842 million raised through an at-the-market (ATM) stock offering, have had a minimal impact on the overall market. This move increased the company’s bitcoin yield for the quarter by 1%, bringing it to 12.1%. However, according to TD Cowen’s analysis, these purchases only accounted for an average of 3.3% of weekly bitcoin trading volume, a relatively insignificant portion compared to the broader market.
Over the past 27 weeks, Strategy’s total bitcoin activity amounted to 8.4% of total weekly volume, but this number was skewed by a few weeks of particularly large purchases. In eight weeks, the company made no purchases at all. This suggests that, for the most part, the company’s purchases cannot be seen as a major driver of bitcoin’s price action.
Weak Correlation with Bitcoin Prices
Further analysis of the relationship between Strategy’s purchases and bitcoin price movements showed a statistically weak correlation. The correlation coefficient between the company’s weekly purchases and bitcoin’s price at the end of the week was just 25%. When analyzing the relationship between purchases and weekly price changes, the correlation only slightly increased to 28%. These low correlation values indicate little connection between Strategy’s buying activity and short-term market fluctuations.
Mining vs. Market Purchases
Another commonly cited argument is that Strategy’s purchases sometimes exceed the number of bitcoin mined in a given period, supposedly putting upward pressure on prices. However, the analysis reveals that this perception doesn’t fully account for the dynamics of the bitcoin market. Over the past six months, secondary market trading has far outpaced mining volume, even without Strategy’s purchases. Secondary market activity has been nearly 20 times larger than mining volume, with or without Strategy’s involvement, making it clear that both miners and buyers are effectively price takers, rather than price setters.
Value Creation Over Hype
Although Strategy’s purchases may not significantly move the price of bitcoin, the company’s strategy has been successful in generating value for its shareholders. The 6,556 BTC purchased last week resulted in an incremental gain of approximately 5,281 BTC, contributing to nearly $600 million in gains for the quarter. Since the beginning of 2023, Strategy’s bitcoin holdings have increased by 306%, while its share count has only risen by 94%, reflecting the strategic use of bitcoin as a treasury asset.
With $1.53 billion in remaining ATM capacity and approval for a larger share issuance, Strategy appears poised to continue using this strategy without causing disruption in the bitcoin market.
“We expect that Strategy will continue to drive positive BTC yield for the foreseeable future,” TD Cowen analysts stated. While bitcoin’s rising price may reduce the yield in dollar terms, the incremental gains from Strategy’s treasury operations are likely to remain highly beneficial to shareholders.
