Tesla, in an SEC filing on Monday, announced that it has bought $1.5 billion worth of bitcoin. This news fueled another surge in bitcoin price, recording a new all-time high at $47,513.57 and witnessing more than 20% growth in less than 24 hours.
The company said that they bought bitcoin for “more flexibility to further diversify and maximize returns on our cash.”
Tesla also said they plan to start accepting payments in bitcoin in exchange for its products “subject to applicable laws and initially on a limited basis.”
If Tesla starts to accept payment in bitcoin, it will be the first major automaker to do so. The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments.
Tesla has invested a significant amount of its cash into buying bitcoin. The company had said in its most recent filing that it had more than $19 billion in cash.
With spending $1.5 billion of that $19 billion into buying bitcoin, the company had used more than 7.5% of its total cash.
However, remembering the last moves of Tesla CEO, Elon Musk, on Twitter – changing his bio to #bitcoin – we could have expected this.
Elon Musk has been credited for increasing the prices of Bitcoin and Dogecoin by posting positive messages that have encouraged more people to buy the digital currencies.
Is Tesla’s investing in Bitcoin (and accepting it as payment) a smart move?
Marketwatch, a leading website in financial information, business news, analysis, and stock market data, requested financial experts to comment on this act of Tesla:
“I think this is an awful strategy on many, many levels,” Christopher Schwarz, associate professor of finance and faculty director of the Center for Investment and Wealth Management at the University of California at Irvine.
“In essence, this is like creating [currency] risk since none of Tesla’s suppliers are paid in bitcoin,” Schwarz told.
Jerry Klein, managing director, and partner at Treasury Partners, based in New York, shared his view:
“Tesla’s purchase of bitcoin is an unusual use of corporate cash, which is typically held in safer and less volatile assets, such as short-term fixed income securities to ensure liquidity and limit volatility.”
“While Tesla shareholders are reacting positively to the news, it remains to be seen how shareholders would react if a decline in bitcoin’s price negatively affects Tesla’s future earnings,” Klein said.
“CFOs are willing to accept risk in their overall business, but not with the cash on their balance sheet. While bitcoin has been surging in recent months, it’s been very volatile over the past few years,” he said.
What do crypto experts think about Tesla’s move?
Dermot O’Riordan, partner at the blockchain-focused private-equity firm Eden Block told Businessinsider:
“This moment will likely be looked upon in years to come as a genuine tipping point; Elon and Tesla’s support legitimizes crypto and opens up bitcoin to a whole new class of retail and institutional investors. Now it seems all of Wall Street is in bed with this industry – if they weren’t paying attention before, they are now.”
Another crypto expert, Antoni Trenchev, co founder and managing partner at the crypto lender Nexo said:
“Tesla and Bitcoin – the archetypes of volatility – inevitably meet again because they are tools that came about because of frustration and courage, to paraphrase the old saying. Frustration at the way things are, and courage to make sure that they do not remain as they are,” Alex Mashinsky.
Alex Mashinsky, CEO of the crypto lender Celsius Network stated his thought:
“The richest person in the world just told you he does not believe in holding dollars as a long term store of value. We have heard from the smartest investors in the world and now we have heard from the richest people in the world, they all agree that having 5-10% of your net worth in BTC is a critical part of a well-diversified portfolio.”