Cowen – Earlybirds Invest

According to a research paper by TD Cowen, despite his footprint as a major corporate holder for Bitcoin (BTC) (BTC), large-scale purchases of cryptocurrency strategies seem to have little effect if they influence its price.

The findings released Monday challenge the theory that is popular among skeptics. A proactive purchase of a strategy will help support the value of Bitcoin, meaning that prices will fall if there is no ongoing demand. But based on the data, the argument holds less weight, analysts said.

Big buyer, but small slices in the market

The strategy recently issued an additional 1.8 million shares based on its Market Offer (ATM) offering, raising an additional $842 million in net revenue. The funds were used to buy 6,556 Bitcoin, increasing Bitcoin yields this quarter by 1% to 12.1%. However, when measured against the broader Bitcoin market, these purchases are merely a bucket reduction.

Strategic Bitcoin purchases typically average just 3.3% of weekly trading volume, according to TD Cowen analysis. Over the past 27 weeks, the company’s total activity reached 8.4% of its volume, but this figure was skewed over a few weeks, with purchases surged by 20% in a short time. In these eight weeks, the strategy didn’t buy any Bitcoin at all.

“Our conclusion is not plausible that for most periods, strategy purchases could have had a lasting and significant impact on Bitcoin prices,” an analyst at TD Cowen wrote.

correlation? Not much.

The analysis further tested the relationship between strategy Bitcoin purchases and market price, finding it to be statistically weak. The correlation coefficient between the strategy’s weekly Bitcoin purchase volume and the end-of-week BTC price was only 25%. Comparing purchases with weekly price changes, the correlation rose slightly to 28%.

Given that correlation coefficients near zero suggest NO or weak correlation, these results indicate that there is little link between strategy behavior and short-term market movements.

How about passing a miner?

Another common criticism is that strategies often buy more bitcoin than they are mined in a given period, meaning that this creates upward price pressure. Technically true, this analysis shows that this argument misunderstands how the Bitcoin market works.

For the past six months, secondary Bitcoin transactions have surpassed mining volumes nearly 20 times. Even if we remove the strategy purchase from the equation, secondary market activity is still over 17 new supplies. In that environment, both the miners and buyers are priced people, not setters.

“As we’ve seen, the purchase represents a very small percentage of the total amount of Bitcoin trading volume. So the idea that it somehow has a profound or pronounced impact on Bitcoin’s price action seems like a disharmony to us,” says TD Cowen.

Not hype, but the value of the building

The impact of strategies on the Bitcoin market may be exaggerated, but the value generated for shareholders is difficult to ignore.

Last week’s purchase created an estimated incremental gain of 5,281 Bitcoins, bringing quarterly profits to nearly $600 million. Since the beginning of 2023, the strategy has increased Bitcoin holdings by 306%, but has only expanded its fully diluted shares by 94%.

The board’s approval for the remaining ATM capacity and larger share permits is $1.533 billion, with the strategy well positioned to continue this strategy.

“We expect the strategy to continue to drive positive BTC yields for the near future. BTC yields could continue to increase prices for Bitcoin, but the dollar value of incremental profits from the strategy’s financial operations could remain very favorable to shareholders,” the analyst wrote.

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