Yesterday Tesla (TSLA) disclosed their purchase of a large amount cryptocurrency Bitcoin – along with an announcement that they will soon start accepting payments in Bitcoin for their vehicles.
This is not the first time a corporation has moved some of their balance into crypto – Square (SQ) and others have also invested around 1% of their cash balance into crypto – but this is certainty the most significant instance as of yet. The question is of course… Is it a smart move? As an investor in the company I wanted to share my thoughts.
The move is huge for Tesla itself but also Bitcoin and crypto especially. When large corporations jump on board, it creates a huge leap in credibility for the digital currency and the practice of trading purely-digital payments as a whole.
Interestingly, the SEC filing from yesterday shows that the purchase went through about a month ago. This means of course that with Elon’s recent shenanigans on Twitter they are already up on their investment rather significantly. The currency jumped another 15% on the day of the disclosure. Mainstream media has been quick to criticize these types of actions as market manipulation.
While crypto remains wildly volatile it is speculated by many to reach new highs in the future – and by some to even be the only currency we will have in the future. Looking at Bitcoin specifically, the frontrunner and most well regarded it is interesting to be aware that only 21 million can be mined in total, limiting supply – so if it keeps seeing traction and becoming more and more of an accepted currency it will inevitably go up.
Personally I think the move by Tesla is brilliant. When you are to start taking orders in the currency you obviously need to build a reserve. Tesla has put about 15% of their available cash into this new endeavor and as with all investments its a risk to be sure. This is no different. But I like the move purely from a standpoint of diversification. As a hedge against inflation and a weakening US dollar. The US dollar is of course the primary cash reserve for the entire world and an American company with as much cash on hand as Tesla is severely affected by its valuation. The pandemic has managed to devaluate the US dollar as The Federal Reserve under the Trump administration has been printing money like never before. Even if we do not see any further drop in the US dollar value diversifying is certainty a welcome strategy in my book. Bitcoin has the lowest performance correlation in comparison to any other asset class – Meaning you it’s a great way to further decrease risk.
Other institutional facilities and corporations will undoubtedly follow suit in the wake of this move by Tesla and that alone might be enough to further increase the value of Bitcoin significantly. According to ARK invest if the S&P500 all allocated around 1% of their cash into Bitcoin, its price could increase by as much as 40.000 USD. That would make it close to double of its price today.
Simply put, in the words of Elon Musk: “In retrospect, it was inevitable.”
If you are at all interested in buying/selling crypto I do have a tiny position myself over at Coinbase and you are of course welcome to use my referral link for an extra $10 on your first purchase (works internationally). Though crypto interests me greatly I do not do any kind of significant investing into it myself as the tax laws in my country have made it a very unattractive option as of now.
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
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