Strategy's Bitcoin Purchases Show Little Influence on Market Prices, TD Cowen Analysis Reveals

A recent analysis by TD Cowen has thrown significant scrutiny on the perceived influence of Strategy, a corporate entity increasingly recognized for its holdings in Bitcoin (BTC). Despite being a major player in the crypto market, Strategy's large-scale purchases seem to have a negligible impact on the price of Bitcoin, according to the recent research released on Monday. The study challenges the commonly held belief that Strategy's aggressive buying is crucial for maintaining Bitcoin’s market value and suggests that such assertions may lack a substantial evidential foundation. The firm recently conducted an additional 1.8 million shares offering under its at-the-market (ATM) mechanism, generating $842 million in net proceeds. These funds were allocated to acquire 6,556 bitcoins, which increased Strategy’s yield this quarter from 11.1% to 12.1%. However, when putting this in context within the broader crypto ecosystem, these acquisitions represent only a minor percentage of market activity. Specifically, the TD Cowen analysis reported that Strategy's purchases accounted for approximately 3.3% of weekly trading volume on average. In a more comprehensive review over a 27-week period, it was noted that the company's total activity reached merely 8.4% of the volume—distorted by a few weeks of heightened purchasing activity. The analysts' conclusion emphasized that there seems to be minimal correlation between Strategy’s purchases and any significant short-term price movements in the Bitcoin market. With a correlation coefficient of 25% between weekly purchase volumes and prices, and a marginally higher coefficient of 28% when observing weekly purchase volumes against price changes, it can be asserted that Strategy's buying behavior does not drive price dynamics as previously assumed. Another argument often thrown against Strategy is its capacity to purchase more Bitcoin than what is mined during specific periods, which theoretically hints at upward pressure on prices. However, the analysis clarifies that this belief is rooted in a misunderstanding of market mechanics, as secondary Bitcoin trading has overshadowed mining volumes by nearly 20 times in recent months. Even considering total market activity excluding Strategy’s acquisitions, the secondary market remains 17 times ahead of freshly mined Bitcoins. While Strategy's tangible influence on Bitcoin prices appears to be significantly overstated, the performance it has delivered for its shareholders is noteworthy. The company’s purchasing strategy has amassed an estimated incremental gain of approximately 5,281 Bitcoins, translating into gains of nearly $600 million for the current quarter. Since the start of 2023, Strategy has expanded its Bitcoin holdings by an impressive 306%, whereas the diluted share count has only risen by 94%. Thanks to remaining ATM capacity of $1.53 billion and authorized ability for larger share distributions, Strategy seems in a strong position to maintain this trajectory without excessively impacting the broader market. Looking forward, analysts at TD Cowen predict that Strategy will likely drive robust BTC yields in the upcoming future, despite potential fluctuations in Bitcoin pricing. They also note that while overall yield may decline with rising Bitcoin prices, the consistent dollar value from Strategy's treasury management could continue to favor shareholders. This serves as an important reminder that while major institutional investments can generate headlines, the actual market influence of these purchases requires substantial contextual understanding and analysis.