National Post (National Edition)
DRIVEN
TESLA'S MUSK ELECTRIFIES CRYPTOCURRENCY PRICE WITH US$1.5B PURCHASE.
Bitcoin took another large stride toward mainstream acceptance on Monday after billionaire Elon Musk's electric-vehicle company Tesla Inc. revealed it had bought US$1.5 billion of the cryptocurrency and would soon accept it as a form of payment for cars — sending the cryptocurrency shooting higher.
The announcements, buried deep in Tesla's 2020 annual report, drove a 13-percent surge in the world's most widely-held cryptocurrency to over US$43,000. At current prices, 0.88 bitcoins would be enough to buy an entry-level Tesla Model 3.
Investors anticipated other companies will soon join a list of firms that invest in or hold Bitcoin including BlackRock Inc., the world's largest asset manager, and payments companies Square and PayPal.
Musk has upended Wall Street over the last year and briefly became the world's richest person as shares of Tesla surged nearly 500 per cent, leaving other companies and investors eager to follow in his wake.
“If any lesser mortals had made the decision to put part of their balance sheet in Bitcoin, I don't think it would have been taken seriously,” said Thomas Hayes at Great Hill Capital LLC in New York. “But when the richest man in the world does it, everyone has to take a second look.”
The news sparked heavy trading in cryptocurrencies and caused exchanges like Coinbase, Gemini, Binance to experience technical issues, according to Coindesky.
It also generated discussion on Reddit. While discussions of cryptocurrencies are banned on the WallStreetBets community that fuelled the GameStop Corp trading frenzy, users in other subreddits posted “to the moon,” expecting more companies to follow suit after Tesla.
Some report exchanges including Binance and Kraken were having issues trading, while other also raised the question of whether Musk has been pumping the price of Bitcoin while making a major investment in the cryptocurrency.
A well-known supporter of cryptocurrencies, Musk has weighed in regularly on the past month's frenzy in retail investment, also driving up prices of the meme-based digital currency Dogecoin and shares of U.S. video game chain GameStop.
He said a week ago that Bitcoin was “on the verge” of being more widely accepted among investors, and in December asked if it was possible to do large transactions in the currency. In late January, Musk changed the bio of his Twitter account, which has 46 million followers, to include #bitcoin.
Tesla said in a filing the decision to move nearly eight per cent of its reserves into Bitcoin was part of its broad investment policy as a company aimed at diversifying and maximizing its returns on cash, including holding gold. The report said it ended 2020 with US$19.38 billion in cash and cash equivalents.
“We expect to begin accepting Bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt,” the company said.
Tesla said it had invested an aggregate US$1.5 billion in Bitcoin under the changed policy and could “acquire and hold digital assets from time to time or long term.” Shares of the company rose 1.5 per cent Monday.
Gold jumped more than one per cent Monday while cryptocurrency Ethereum surged to a record high.
Central banks remain skeptical of digital currencies, but analysts say the more real-world uses appear for Bitcoin, the more attractive it will prove as a longterm store of value.
Bitcoin surged nearly 14 per cent to a record high of US$43,625 after Tesla's disclosure.
“The argument for Bitcoin is evolving. It used to be negative (reasons to buy), but suddenly there are positive reasons, and that's why you see Bitcoin at (new highs),” Mohamed El-Erian, chief economic adviser of Allianz, told CNBC.
Tesla is the latest company to add Bitcoin to its corporate treasury, following similar moves by Square, the payments company led by Twitter Inc. chief Jack Dorsey and U.S. software firm MicroStrategy Inc.
Tesla's move may be a signal that it expects the cryptocurrency will emerge as another store of long-term value alongside the dollar and gold, said Graham Tanaka of Tanaka Capital Management in New York.
“Companies are very careful when it comes down to their reserves,” he said. “This doesn't appear to be a flash in the pan. It appears to be something that may be a fundamental change.”