In a recent Harvard Business Review piece, I explained the One Oasis Strategy and Double Play Strategy. As the news that Elon Musk was divorcing Bitcoin because of his desire to save the planet hit the world, many were skeptical of the core hypothesis he was making the call. Yes, was Tesla really concerned about the climate? Yes, you are right to ask that question because mining Bitcoin is not a state secret, and Tesla knew how it has been done before they bought the first coin. So, the reason they gave must be examined.
Bitcoin has lost one of its biggest fans, Elon Musk. The Tesla CEO, whose announcement of accepting bitcoin for Tesla’s purchase earlier in March, fueled the lead-cryptocurrency’s rally that hit $64,000 in April, made a statement on Wednesday that wiped as much as $365 billion off cryptocurrency market. In a blow-dealing U-turn, Musk said Wednesday that Tesla will no longer accept bitcoin, citing mining energy concerns:
Here is a big possibility: the recent playbook from Elon will likely open for Tesla to sell emission credits to Bitcoin miners. I have already noted another possibility, relying on renewable energy which Elon through SolarCity is well invested in: ‘Elon Musk, cited the “rapidly increasing use of fossil fuels” for mining and transactions, and the cryptocurrency plunged. Now, Elon has just seeded another business for his empire: mining Bitcoin with renewable energy.’
Tesla sells cars as the one oasis, and sells emission credits as a double play. It is very possible that by putting Bitcoin mining in play, Tesla will unlock massive value from those buying credits, to offset Bitcoin mining. If that happens, Tesla which makes electric vehicles will win: “Last year, Tesla raked in about $1.4 billion selling emission or carbon credit to fellow carmakers who produce combustible vehicles. Analysts believe the credit revenue probably will rise to $2 billion in 2021. In the first quarter of 2021, emissions credits accounted for $518 million in Tesla’s revenue with a pretax income of $533 million and a net income of $438 million on a GAAP basis, according to data from Autoweek. This means, the credits account for almost the entirety of Tesla’s profit for this quarter.”
Simply, anything which can extend those emission credit sales for Tesla is part of the playbook, and getting Bitcoin players (banks, investors, miners, etc) into the emission credit business will not be a bad play for Tesla. So, left and right, Tesla is moving to the edges of the smiling curve and will capture more value therein.
“Sales of emissions credits have been a major source of revenue for Tesla for quite some time, contributing to hundreds of millions in income for the past few quarters. The automaker accumulates regulatory credits because it produces only EVs and sells them for a profit to other automakers that are short of these credits,” Autoweek report said.
Could it be that Musk initiatedTesla’s abrupt divorce of bitcoin to sell more emission credits, knowing that cryptocurrency mining companies will scramble to switch to sustainable energy or to ameliorate the impact of fossil and coal powered mining through offsets?
The $2 billion revenue projection is based on expected carbon credit sales to carmakers, which means, the revenue will quadruple when the sales expands to cryptocurrency miners. Musk knows the short term consequences of his decision to quit bitcoin, but he also knows the long term benefits. Tesla will return to bitcoin as soon as there is a clear sign of sustainable energy in its mining, instigating another frenzy that will shoot the price up while making millions of dollars selling emission credit.
But this is what we know: Tesla is not leaving the coin sector because it knows that it is going to be part of the future of money, Bloomberg reports.
The history of modern finance has seen several monetary orders, from the gold standard of the 19th century to the current fiat-based era starting in 1971. Each period had its dominant reserve currency, starting with gold and then moving to the British pound and U.S. dollar. The current system is 50 years old, about the average length of previous monetary orders.
The lesson is that nothing lasts forever. The prudent should be preparing for the next monetary order, with all signs pointing to decentralized finance using a stablecoin as its reserve currency. How regulators and Wall Street handle this transition will significantly impact the global economy, as it seems destined to happen with or without their blessing.
Cryptocurrencies are decentralized computer networks that run on networks with no on/off switch or an overarching authority that makes rules. The mantra here is “code is law.”
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