Does the selling of bitcoin-backed shares have an effect on BTC's price?

[pawel7777]

On the back of another topic which I started earlier today related to Michael Saylor selling his 400k shares in Microstrategy, a question came to mind:

Does the selling of bitcoin-backed shares directly affect bitcoin's price at all?

As a thought experiment, instead of Microstrategy, we could take a hypothetical small (but listed) company that has minimal operations but buys tonnes of bitcoins, to the point that the value of its shares is almost entirely backed by bitcoins and their market price is 100% correlated with bitcoin price.

What happens when a shareholder decides to dump a large amount of such shares on the market? Would that be equivalent to dumping bitcoins? After all, it's just a change in the company's ownership and bitcoins held by the company remain untouched.

both topics are cross-posted with bitcointalk

[TomPluz]

What happens when a shareholder decides to dump a large amount of such shares on the market? Would that be equivalent to dumping bitcoins? After all, it's just a change in the company's ownership and bitcoins held by the company remain untouched.

This is a good question and since we are now seeing this thing happening in the market right now, maybe discussing this to further illuminate on the subject can be worth it. As for me, the situation you mentioned above will not have a direct effect on the price of Bitcoin as it is the shares of that company that got sold and is not really the Bitcoin being held by the company in question. Now, will there be a kind of ripple effect on the market that can sway Bitcoin somehow? I think it got something to do with confidence on Bitcoin. Like why would you sell shares of that company if you think that Bitcoin will continue on soaring? This will come into focus with big companies because a move like selling shares will come on the news much more so if there is some connection to Bitcoin.

[pawel7777]

(...) As for me, the situation you mentioned above will not have a direct effect on the price of Bitcoin as it is the shares of that company that got sold and is not really the Bitcoin being held by the company in question. (...)

Just to clarify, I only meant pure supply/demand market mechanisms, not the psychological effect (such as losing confidence etc).

Let's try to break it down:
So what would happen if such dump caused the price of shares to go below the price of bitcoin (ie. they would be traded below company's market value)? If the arbitrage could be applied, i.e. new shareholders could force the company to sell bitcoins - then all is clear. But if new shareholders could not make the decision to sell, then the only impact on BTC price would be that some potential BTC buyers would choose to buy cheaper company shares instead (so reducing demand for BTC and causing the price to drop).

I can't think of any other factors.

[pacar_tiri]

(...) As for me, the situation you mentioned above will not have a direct effect on the price of Bitcoin as it is the shares of that company that got sold and is not really the Bitcoin being held by the company in question. (...)

Just to clarify, I only meant pure supply/demand market mechanisms, not the psychological effect (such as losing confidence etc).

Let's try to break it down:
So what would happen if such dump caused the price of shares to go below the price of bitcoin (ie. they would be traded below company's market value)? If the arbitrage could be applied, i.e. new shareholders could force the company to sell bitcoins - then all is clear. But if new shareholders could not make the decision to sell, then the only impact on BTC price would be that some potential BTC buyers would choose to buy cheaper company shares instead (so reducing demand for BTC and causing the price to drop).

I can't think of any other factors.

Arbitrage seems to be very difficult to do because currently you have to look at transaction costs which are quite expensive which will make many traders who use the arbitrage method consider sending assets using bitcoin. If you buy shares in a cheaper company, it seems like only a few people will choose that because the profits they get are less than investing in bitcoin.

[MrSpasybo]

Just to clarify, I only meant pure supply/demand market mechanisms, not the psychological effect (such as losing confidence etc).

Let's try to break it down:
So what would happen if such dump caused the price of shares to go below the price of bitcoin (ie. they would be traded below company's market value)? If the arbitrage could be applied, i.e. new shareholders could force the company to sell bitcoins - then all is clear. But if new shareholders could not make the decision to sell, then the only impact on BTC price would be that some potential BTC buyers would choose to buy cheaper company shares instead (so reducing demand for BTC and causing the price to drop).

I can't think of any other factors.

I think it is normal for Saylor to sell MSTR. The market is maintained by the buying and selling of assets, and Saylor is also an investor. He has the right to sell his shares when he needs to.

This decision could have a temporary negative impact on MSTR price and cause MSTR investors to worry that something negative is about to happen to the stock. However, this decision has no direct impact on BTC and the crypto market because MS has not sold any BTC.

In fact, we can believe that Saylor is selling MSTR to continue accumulating BTC himself, as Saylor is known as BTC diamond hands in the market. This could boost investor confidence and optimism in BTC, giving them more reasons to invest more in BTC, driving up BTC price.

[jeraldskie11]

We have to understand that the price of Bitcoin can be determined by its market capitalization and circulating supply. If ever there was a changes any of them will affect the price. If a company sell Bitcoin, let us say Microstrategy, it will make the price to decrease but the decrease of the price vary on how much the value of Bitcoin they are selling. Sometimes it's a domino effect, when one company sell Bitcoin and the other company saw it, they will also sell Bitcoin and going to reinvest in a lower price.

[yhiaali3]

We have to understand that the price of Bitcoin can be determined by its market capitalization and circulating supply. If ever there was a changes any of them will affect the price. If a company sell Bitcoin, let us say Microstrategy, it will make the price to decrease but the decrease of the price vary on how much the value of Bitcoin they are selling. Sometimes it's a domino effect, when one company sell Bitcoin and the other company saw it, they will also sell Bitcoin and going to reinvest in a lower price.

Yes, what you say is correct, but the topic mainly talks about the effect of selling stocks backed by Bitcoin and not about selling Bitcoin itself.

Personally, I do not expect that selling shares will have a significant material impact on the price, but of course it will have a significant psychological impact and may cause fud and people will start selling.

As for selling Bitcoin itself, it will not affect the market unless there is a sale of large quantities from several companies and not from one company, because the market value of Bitcoin is enormous and will not be affected by the sale of one company’s holdings.

[jeraldskie11]

We have to understand that the price of Bitcoin can be determined by its market capitalization and circulating supply. If ever there was a changes any of them will affect the price. If a company sell Bitcoin, let us say Microstrategy, it will make the price to decrease but the decrease of the price vary on how much the value of Bitcoin they are selling. Sometimes it's a domino effect, when one company sell Bitcoin and the other company saw it, they will also sell Bitcoin and going to reinvest in a lower price.

Yes, what you say is correct, but the topic mainly talks about the effect of selling stocks backed by Bitcoin and not about selling Bitcoin itself.

Personally, I do not expect that selling shares will have a significant material impact on the price, but of course it will have a significant psychological impact and may cause fud and people will start selling.

As for selling Bitcoin itself, it will not affect the market unless there is a sale of large quantities from several companies and not from one company, because the market value of Bitcoin is enormous and will not be affected by the sale of one company’s holdings.

In my opinion, there are some point that it would affect the price of Bitcoin but most of the time it won't. Just like what I've said, Bitcoin prices only affected when there's a changes in a circulating supply and marketcap. So if Bitcoin's price affected by selling Bitcoin backed shares, probably they are just afraid that the Bitcoin will be the next, especially if this thing always happened in the market. We can make a comparison to news into that.

[Captain Corporate]

Depends, if we are talking about the result being something that causes the bitcoins themselves to be sold as well, then yeah, but if the result isn't bitcoins being sold, then it has nothing to do with it. Simply put, the only thing that drops the price of bitcoin is selling bitcoin, and if you are not selling bitcoin then you are not going to end up with a lower price for bitcoin. In this case, Michael Saylor sold his own shares, to a company, and yes that company does buy bitcoins, but that doesn't mean that just because we are dealing with something like this doesn't mean that we are going to see them sell bitcoins neither.