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.