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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 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?”
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.
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.
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.
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?
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