Strategy's Bitcoin Buys Have Minimal Price Impact, TD Cowen Finds

Strategy, a major corporate holder of bitcoin, has been actively purchasing large amounts of the cryptocurrency. However, according to a research paper by TD Cowen, these purchases have had minimal impact on bitcoin's price. The findings challenge the notion that Strategy's aggressive buying spree is propping up bitcoin's value, suggesting that without its continued demand, prices would falter. The analysis indicates that Strategy's bitcoin buys typically account for just 3.3% of weekly trading volume on average, and over the past 27 weeks, the company’s total activity amounted to 8.4% of volume. This figure was skewed by a handful of weeks where its buying briefly surged past 20%. In eight of those weeks, Strategy didn’t buy any bitcoin at all.

The TD Cowen analysis further tested the relationship between Strategy’s bitcoin purchases and market prices, finding it to be statistically weak. The correlation coefficient between Strategy’s weekly bitcoin buy volume and BTC price at week’s end came in at just 25%. When comparing purchases to weekly price changes, the correlation rose only slightly to 28%. Given a correlation coefficient close to 0 suggests no or weak correlation, these results indicate little to no link between Strategy’s actions and short-term market movements — let alone any kind of sustained price influence.

Another common critique is that Strategy frequently purchases more bitcoin than is mined in a given period, implying it’s creating upward price pressure. While technically true, the analysis shows this argument misunderstands how the bitcoin market works. Over the past six months, secondary bitcoin trading has outpaced mining volume by nearly 20 times. Even removing Strategy’s purchases from the equation, secondary market activity still exceeds new supply by 17 times. In that environment, miners and buyers alike are price takers — not setters.

While Strategy’s influence on the bitcoin market may be overstated, the value it’s generated for shareholders is harder to ignore. Last week’s purchases created an estimated incremental gain of 5,281 bitcoins, bringing quarter-to-date gains to nearly $600 million. Since the beginning of 2023, Strategy has increased its bitcoin holdings by 306%, while only expanding its fully diluted share count by 94% — a strong showing for a company using bitcoin as a strategic treasury asset. With $1.53 billion in remaining ATM capacity and board approval for a larger share authorization, Strategy is well-positioned to continue this strategy — without disrupting the very market it’s betting on.

TD Cowen analysts expect Strategy will continue to drive positive BTC Yield for the foreseeable future. While BTC Yield will likely fall to the extent bitcoin continues to rise in price, the dollar value of incremental gains from Strategy's Treasury Operations could remain highly advantageous to shareholders. The analysis underscores that Strategy's purchases, while significant in terms of corporate holdings, do not have a material impact on the broader bitcoin market. This perspective challenges the prevailing narrative that large institutional buyers can single-handedly influence cryptocurrency prices, highlighting the complex dynamics at play in the digital asset ecosystem.