Tesla buys Bitcoins for $1.5 billion – what does it mean for the crypto-space?
Summary: Yesterday, Tesla announced their buying of Bitcoins for $1.5 billion. Tesla is joining other publicly traded US-based companies - e.g., MicroStrategy and Square - in buying Bitcoins for their treasury. We look into how it affects the crypto-space.
At the end of 2020, MicroStrategy was the first prominent publicly-traded company announcing their buying of Bitcoins. To date, MicroStrategy has bought Bitcoins for over $1 billion, holding over 70,000 Bitcoins at the time of writing. Since they first bought Bitcoins in September 2020, the MicroStrategy stock is up by over 500%. In October, the American payment processor Square joined MicroStrategy by buying Bitcoins for $50 million. MicroStrategy’s co-founder and CEO, Michael J. Saylor, has been extremely outspoken about Bitcoins since their first Bitcoin purchase, even organizing a conference some days ago educating organizations about holding Bitcoins on their books. The conference was allegedly joined by several thousand companies. Michael J. Saylor has often talked about Bitcoin as a mean to escape inflation as the Bitcoin supply is fixed – something that cannot be said about the fiat supply.
Elon Musk has been talking positively about Bitcoins for months
Elon Musk has for years been talking – or mostly, tweeting – about Bitcoins. Nonetheless, it has never been more than it is now, practically poking fun of the space with his continuous comments on Dogecoin. However, his tone changed some months ago to be more positive on Bitcoin. Some weeks ago, he mentioned that Bitcoin is a good thing – and stated himself as a supporter. He added that he is “late to the party” while updating his Twitter-biography to only subsist of #bitcoin. In a tweet in December, he even asked Michael J. Saylor whether “such large transactions are even possible?”
The Tesla-Bitcoin story was going to happen
With Elon being Elon and his above history with Bitcoin the previous months, the Tesla-Bitcoin story was going to happen, and so it did. The saga about companies putting Bitcoins on their treasuries culminated yesterday as Tesla announced that they have bought Bitcoins for $1.5 Billion. Even though the story was expected to some extent, without offending anyone, the inflow from the company into Bitcoin must have surprised even the most bullish Bitcoin maximalists as it was considerably heavy. Tesla is for sure taking on a significant degree of risk as Bitcoin continues to be both a volatile and risky asset, at least for the foreseeable future. At the same time, Tesla announced their intention to receive Bitcoin as payment for their cars and energy-products in the future.
Other companies will likely follow
Elon Musk is arguably the most prominent person worldwide – and Tesla is one of the most coveted companies with the press watching their every move. Yesterday was no exception as the story broke in close to every media globally. In my opinion, it was the single-most exciting news for this space since the release of Satoshi Nakamoto’s Bitcoin whitepaper back in 2008. The market had the same impression as the Bitcoin price instantly rose by 10% and today tested a new all-time-high of $48,200. Elon Musk immediately removed the Bitcoin hashtag from his Twitter-biography after the news broke, perhaps not to get in any trouble with the SEC.
Based on Tesla’s buying of Bitcoins and MicroStrategy’s conference, other companies will most likely follow their lead. Whether it is to escape inflation, the Federal Reserve’s money-printing, or to gain widespread press coverage, further publicly traded companies are expected to follow by putting Bitcoins on their balance sheet.
Will the FED or others address the Bitcoin buying?
Along with other central banks, the Federal Reserve cannot be pleased with yesterday’s news, particularly if it becomes the norm for companies to buy Bitcoin with their savings. If that will be the new normal, the immense concern should be how the central banks and other governmental organizations will react. Ultimately will they address it by making it illegal or not addressing it at all, letting companies hold Bitcoins as they please? As the regulation and the reactions from governmental organizations worldwide are still unknown, the bet to buy Bitcoins for especially companies is remarkably risky.
Does Bitcoin align with the Tesla philosophy?
Another element that I personally miss in the discussion is whether Bitcoin is an asset which fits into the Tesla philosophy. As I wrote last week, the Bitcoin-network is exceedingly increasing the energy demands for processing transactions on the network and mining new Bitcoins. It is estimated that one Bitcoin transaction generates the CO2 equivalent to over 700,000 Visa transactions. As Tesla’s mission is “to accelerate the world’s transition to sustainable energy”, the matter is whether Bitcoin legitimately fits into that philosophy. Hence, is it for Tesla worth to take on a lot of financial risks –and more importantly, to risk their brand and philosophy to gain press coverage now and here and potentially escape inflation?
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.