Elon Musk’s Tesla has invested $1.5 billion in bitcoin, and announced it’s accepting the cryptocurrency as a form of payment for its car brands in the near future.
The move has come amidst calls by customers of the electric carmaker on Musk to accept bitcoin as means of payment. Musk, who has been expressing his enthusiasm about cryptocurrency recently, promoting Dogecoin and using bitcoin as his Twitter header, described cryptocurrency as the future but admitted he is late to the party.
Tesla announced Monday in its 2020 annual report it’s investing in bitcoin to maximize returns on cash that is not required to maintain adequate operating liquidity.
“In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate liquidity. As part of the policy, we may invest a portion of such cash in certain specified alternative reserve assets.
“Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or not liquidate upon receipt,” Tesla said.
The filing said Tesla ended 2020 with $19.38 billion in cash and cash equivalents.
Bitcoin price went up 10% to more than $43,000 upon the news of Tesla’s investment, breaking it’s all-time high. And Ether, the second most expensive cryptocoin jumped to a record high.
Experts believe Tesla’s move as well as that of other companies will help curb the volatility of bitcoin, and help move the coin toward the mainstream.
“I think we will see an acceleration of companies looking to allocate to Bitcoin now that Tesla has made the first move,” Eric Turner, vice president of market intelligence at cryptocurrency research and data firm Messari said.
“One of the largest companies in the world now owns Bitcoin and by extension, every investor that owns Tesla (or even just an S&P 500 fund) has exposure to it as well.”
Recently, more companies have been betting on bitcoin, pushing its acceptability beyond individuals.
Paypal, a payment platform which was also co-founded by Musk is one of the many companies who have embraced bitcoin, creating digital payment options for its users.
Tesla offering bitcoin as a form of payment gives it an edge over its competitors who don’t have that choice. Other automakers sell directly to dealerships, which independently sell to consumers directly. Tesla sells to consumers directly and does not have any dealership, apart from Tesla-owned sales stores.
The electric vehicle maker’s move into bitcoin will thus make it easier for consumers in countries where moving the amount equivalent for the price of its cheapest model is prohibited by money laundering laws.
The base version of Tesla’s Model 3 costs around $37,690, including destination and documentation charges. The more expensive Model X SUV, might be sold around $100,000. Bitcoin climbed nearly $43,700 Monday; meaning with one or two bitcoins, a consumer can order a model of Tesla from any part of the world regardless of the country’s money laundering laws.
However, Tesla acknowledged in its filing that holding bitcoin may involve some risks, given its fluctuations that have made central banks skeptical of its sustainability.
“Their long-term adoption by investors, consumers and businesses is unpredictable,” Tesla said in its filing, pointing out there are risks of malicious attacks and technological obsolescence for its bitcoin holdings. But the carmaker said it would have to take a charge against earnings if the value falls below the price at which it buys bitcoin, even if it has to sell those holdings.
A list of companies including BlackRock, the world’s largest asset manager, Square and MicroStrategy, have invested in bitcoin, widening the cryptocurrency’s stride of acceptance.
Tesla has a valuation of over $800 billion, and given its CEO’s status as the world richest man, Musk’s interest in cryptocurrency is expected to inspire more companies to invest and use bitcoin as a form of payment.
Analysts say the more reputable companies and individuals use bitcoin, the more attractive it will appear as a long-term store of value, eliminating skepticisms, especially from central banks.
“The argument for bitcoin is evolving. It used to be negative (reasons to buy) but suddenly there are positive reasons, and that’s why you see bitcoin at new highs,” Mohammed El-Erian, chief economic advisor of Allianz, told CNBC.