Why did Elon Musk finally invest in Bitcoin?
After Tesla announced its 1,5 bln and future plans for BTC, the market gets showing new records
Tesla recently announced its $ 1.5 billion investment in Bitcoin in a regulatory filing with the US Securities and Exchange Commission (SEC) as part of company annual earnings report. This report states that Tesla board of directors approved an updated investment policy in January 2021 to provide “more flexibility to further diversify and increase returns on our cash that is not required to maintain adequate operating liquidity”, having $ 19.38 billion in cash and cash equivalents at the end of 2020. Tesla announced that this first cryptocurrency investment might “acquire and store digital assets from time to time or over the long term.” According to the filing, the company can also invest in alternative reserve assets, including gold and other digital assets. Tesla also expressed its intention to “start accepting bitcoins as a form of payment for our products in the near future”.
Tesla has invested almost 8% of its financial reserves in Bitcoin, which is less than 1% of the total current value of the BTC market. Some cryptanalysts are already predicting its price to rise to $ 100,000 or even $ 200,000 before the 2021 release. Such growth will, without a doubt, lead to a significant increase in the value of Bitcoin on corporate balance sheets compared to what it was at the time of the investment. As a result, Tesla’s 8% distribution could already be 12% of its inventory value, and this percentage could rise even faster if Tesla brings to life those intentions of accepting payments in Bitcoins for its vehicles.
Bitcoin’s early proponents did not envision that it would be used as an asset, but with the growing number of exchanges where it could be bought and sold easily, the currency became one. Traditional investment experts don’t take the same approach, but they also warn against using Bitcoin as an investment. Market participants say that the massive volatility of the Bitcoin price without any major fundamental reason is a factor that retail investors should be careful about.
This historical investment might yet result in a potential problematic impact on the company’s stock price. Tesla’s share price is up 2% on the news of a Bitcoin investment, though it has since dropped 5%. All this while Tesla’s CEO Elon Musk is following this crypto adoption trend in his social media by adding, for example, the Bitcoin hashtag to his Twitter account bio. According to the information presented by Tesla in its SEC filings, digital asset prices have until now been and may continue to be highly volatile resulting in a range of associated risks and uncertainties. “For example, the proliferation of such assets is a relatively recent trend, and their long-term use by investors, consumers and businesses is unpredictable. Moreover, their lack of physical form, their dependence on technology for their creation, existence and confirmation of transactions, as well as their decentralization can expose their integrity to the threat of malicious attacks and technological obsolescence, ”- states the Tesla SEC filling. Finally, it is still unclear to what extent security laws or other regulations apply or may apply in the future to such assets and may change in this future. “If we have digital assets, and their value decreases compared to our purchase prices, our financial condition may suffer,” Tesla confirmed.
Bitcoin is associated with a group of iconoclastic founders who have originally tried to break the stereotype of payments and paper money. It was the idea of writing cryptography into code back in 2009 by a person or people known as Satoshi Nakamoto. These rebellious notions overlap to some extent with Musk’s plans on disruption. Tesla manufactures electric vehicles in a world that has been dominated by fossil fuel vehicles until now. What’s more, Tesla’s direct-to-customer model is also seen as a trendsetter, with many companies selling their vehicles through unaffiliated dealerships. Bitcoin’s image as a decentralized asset which is not controlled by any one body also matches the image of Tesla as a corporation and its leader Musk as a powerful personality and entrepreneur. Thus, one of the biggest questions for now is how Elon Musk really considers Bitcoin and other digital currencies as many of you might say that his investment might take an important turn in Bitcoin mining and electricity consumption in the Blockchain Network general operations. Researchers and analysts note that building a ‘network effect’ around Bitcoin might be driving a broader class of digital currencies into the mainstream by finally giving them and Bitcoin on the first place a real financial and investment legitime status.