Strategy's Bitcoin Buys: A Pattern of Price Gains – A Signal for Retail Investors?

Strategy bought $1.34 billion of Bitcoin from May 5 through May 11, during which the price of Bitcoin increased by around 9%.

According to data compiled by Bloomberg, Four of the six purchases exceeding $1 billion this year by the dot-com-era software maker, which has become a proxy for leveraged Bitcoin investment, coincided with positive price movements of the token. Conversely, there were no purchases in the three weeks when Bitcoin experienced the most significant declines.

Gustavo Gala, an analyst at Monness, Crespi, Hardt & Co., shared a graph on X that illustrates Strategy's Bitcoin purchases since August 2020 alongside the price of Bitcoin, captioned "Connect the Dots."

Some skeptics argue that Strategy's Bitcoin buys are too small and sporadic to consistently influence the market, noting they account for only about 8% of weekly volume. However, without MicroStrategy's purchases, Bitcoin's current price level would likely be lower.

This is attributed to Strategy accumulating Bitcoin at a faster rate than total miner output, resulting in a -2.33% annual deflation rate for the supply-capped asset, which could be higher considering other stable institutional holders. Their 555,000 BTC is illiquid, with no plans to sell.

Strategy's aggressive Bitcoin purchases are part of an $84 billion capital-raising campaign. The company, now a de facto Bitcoin proxy, serves as a conduit between Bitcoin and traditional financial (TradFi) markets. It channels funds from TradFi investors into Bitcoin by issuing corporate debt and equity, which are then used to finance additional Bitcoin acquisitions.

Michael Saylor, Strategy's co-founder and a vocal Bitcoin advocate, has inspired many companies to adopt a Bitcoin treasury strategy. He passionately promotes Bitcoin to potential investors. More than 13,000 institutions have direct holdings of MicroStrategy stock in their portfolios.

Over 30 publicly listed companies have adopted Strategy's Bitcoin acquisition strategy, intensifying competition in the corporate crypto space.

Bitcoin investors keep a close eye on Strategy and its impact on the Bitcoin market. By spearheading the move toward institutional Bitcoin adoption, MicroStrategy is tightening the supply of available coins, which in turn boosts BTC prices and reduces price swings.

Adam Livingston, author of "The Bitcoin Age and The Great Harvest," has argued that Strategy's aggressive Bitcoin purchases are effectively "synthetically halving" the available supply by outpacing miner output. According to Livingston, Strategy's daily accumulation of around 2,087 BTC exceeds the current daily miner output of approximately 450 BTC.

Institutional investors, including hedge funds, pension funds, asset managers, and tech companies, continue to buy Bitcoin as a portfolio diversifier or treasury asset to hedge against fiat currency inflation. Bitcoin ETF inflows have also helped stabilize the cryptocurrency's price by injecting fresh capital from traditional financial markets, reducing volatility and mitigating downturns.

However, the most prominent institutional investors—sovereign wealth funds—are unlikely to increase their Bitcoin purchases until clear cryptocurrency regulations are established in the United States, according to SkyBridge founder Anthony Scaramucci.

Scaramucci added that once a comprehensive regulatory framework emerges in the US, it will likely trigger significant Bitcoin purchases by sovereign wealth funds, which could drive up the price of Bitcoin.