According to TD Cowen, Strategy’s Bitcoin Purchases Have Little Effect on Market Prices

TD Cowen Analysis: Strategy’s Bitcoin Purchases Have Limited Effect on Market Prices

According to a recent study by TD Cowen analysts, Strategy’s bitcoin (BTC) buying spree has had little to no influence on the cryptocurrency’s price, despite the company’s growing presence as a major corporate holder of bitcoin.

Published on Monday, the report challenges the widespread belief that Strategy’s substantial bitcoin purchases are helping to maintain or elevate the price of the cryptocurrency. The data indicates that without Strategy’s purchases, bitcoin’s market value would likely remain relatively unaffected.

Strategy’s Bitcoin Purchases Account for a Small Fraction of the Market

While Strategy is known for its significant bitcoin holdings, the company’s recent purchase of 6,556 BTC, funded by $842 million raised through a stock offering, is a minor factor in the broader bitcoin market. This acquisition increased the company’s bitcoin yield for the quarter by just 1%, bringing it to 12.1%. However, TD Cowen’s analysis reveals that these purchases make up only a small percentage of weekly bitcoin trading volume.

Over the last 27 weeks, Strategy’s purchases have represented only 3.3% of total trading volume on average. This figure was skewed by several weeks where the company’s buying activity surged above 20%. On eight occasions during the period, Strategy made no bitcoin purchases at all. The conclusion drawn from these findings is that the company’s buying activity is too small to have any lasting impact on bitcoin prices.

Weak Correlation with Price Movements

TD Cowen further investigated the connection between Strategy’s purchases and bitcoin price fluctuations. Their analysis showed a weak correlation, with a coefficient of just 25% between the weekly bitcoin buy volume and the closing price of BTC. Even when comparing the weekly purchases to price changes, the correlation increased only slightly to 28%, suggesting that there is little to no relationship between Strategy’s actions and short-term market movements.

Misconception About Strategy’s Market Impact

A common argument against Strategy’s purchases is that the company is buying more bitcoin than is being mined, which supposedly creates upward pressure on the price. However, TD Cowen’s analysis reveals that this argument does not reflect the true dynamics of the market. Secondary market trading has consistently outpaced bitcoin mining volume, even without factoring in Strategy’s purchases. Over the past six months, secondary market activity has been nearly 20 times greater than the bitcoin mined in the same period, underscoring the fact that both miners and buyers are effectively responding to the existing market conditions, rather than driving the price.

Building Value for Shareholders

Despite the limited influence on bitcoin’s price, Strategy has been successful in creating significant value for its shareholders. The company’s recent bitcoin purchases resulted in a gain of approximately 5,281 BTC, adding nearly $600 million in value for the quarter. Since early 2023, Strategy’s bitcoin holdings have grown by 306%, while its share count has only increased by 94%, demonstrating the company’s effective use of bitcoin as a treasury asset.

With $1.53 billion in remaining ATM capacity and approval for additional share issuances, Strategy is well-positioned to continue its bitcoin accumulation strategy without disrupting the market.

“We anticipate that Strategy will continue to generate positive BTC yield in the future,” the TD Cowen analysts noted. While the value of these gains in dollar terms may decrease if bitcoin prices rise, the overall strategy will likely remain highly beneficial for the company’s shareholders.