“In retrospect, it was inevitable.” The words Elon Musk tweeted in late January 2021 make quite a bit of sense in retrospect. Tesla is now the most valuable company globally that has made a billion-dollar investment in Bitcoin and will help cryptocurrencies further into the mainstream. So Tesla will continue to invest in Bitcoin, and it will accept crypto assets as payment in its stores in the future.
This news, hidden in a document for the US Securities and Exchange Commission (SEC), has propelled Bitcoin to new heights. On Tuesday night, BTC grew to as high as $47,600. That represents a recent price increase of nearly 20 percent in 24 hours and a gain of almost 35 percent in a week. These hefty gains benefit retail investors and those companies (e.g., MicroStrategy, Square, PayPal, etc.) that have put a lot of money into Bitcoin as a gold alternative in recent months as institutional investors.
The crypto community is celebrating Tesla’s move with its $1.5 billion investment (which could also be seen as smart marketing), of course. CoinMarketCap, the leading data site on crypto assets and owned by Binance, unceremoniously displays the price of a Model 3 from Tesla above its crypto charts. And this illustrates: for 1 BTC, you can currently get a pretty sought-after electric car.
But what will be the impact of Tesla’s investment in the crypto asset? There’s no telling yet whether many more companies will follow Tesla’s lead and move cash holdings into the crypto asset as well – effectively hedging against inflation or betting on other returns. “The diversification of Tesla’s investment policy into digital assets is adding further momentum to Bitcoin’s rise as institutional investors pounce on the king of cryptocurrencies,” says Paolo Ardoino, CTO of crypto exchange Bitfinex, for example. “The tectonic plates of the global investment landscape have shifted.”
Of course: Bitfinex and Co. are profiting massively from the recent price increases that can be seen not only for Bitcoin but for all coins and tokens at the moment. Binance, Kraken, Coinbase Pro, Bitfinex – they all currently see a substantial increase in trading volume, monetizing through their fees.
But will Tesla’s spark spill over to other companies? “It’s unusual, it’s risky, and it’s not necessarily going to provide the hedge they’re looking for,” says Campbell Harvey, a professor at Duke University in Durham, North Carolina, to the Financial Times, for example, referring to the asset’s high volatility. “That’s fine if you’re a hedge fund and your clients know that’s what you do: you make speculative bets, and sometimes they work and sometimes they don’t.” But he thinks it’s unlikely that many other corporates will now jump on the bandwagon.
Ian McGugan of The Global and Mail even speaks of a “double bubble” and a new sign of frothiness on the markets. And at Tesla itself, of course, managers are fully aware that Bitcoin can bring in losses just the same. “If we hold digital assets and their value declines relative to our purchase prices, our financial position may be impacted,” is the clear warning to shareholders.
Tesla is definitely in a unique position. The stock market price of the e-car market leader grew faster than Bitcoin last year. It no longer has anything to do with the valuations of a conventional carmaker, and even compared to tech giants like Amazon, Apple, or Google (which themselves posted substantial increases in the crisis year), Tesla is clearly overvalued.
And: Is the Bitcoin investment good for Tesla’s image? At first glance, sure; after all, Musk is celebrated on the web like no other. But at second glance, not really. After all, a crypto-asset that is produced using enormous amounts of energy (and mostly in China at that) can hardly be called GreenTech – actually, the corner in which Tesla is perceived by many consumers. The Bitcoin network consumes as much energy as all of Chile and emits as much CO2 as New Zealand. A green, sustainable investment probably looks different.