National Post (National Edition)
Tesla & Bitcoin
Will other companies follow Musk's bold currency move?
Elon Musk's big bitcoin move may have gotten other companies wondering if they should be doing the same, even if they aren't quite ready to take the crypto-plunge.
Electric carmaker Tesla Inc. on Monday revealed that it had invested US$1.5 billion into bitcoin and that it expected to start accepting the digital currency as payment for its products in the near future.
Tesla's regulatory filing was followed by a surge in the price of bitcoin, which had already exploded over the past year. The value of the cryptocurrency shot past US$40,000 apiece, and was trading at above US$47,000 as of Tuesday afternoon.
“Some other companies may be tempted to follow but the vast majority will be far too cautious to expose themselves to the volatile world of cryptos,” predicted Craig Erlam, analyst at foreign-exchange firm Oanda Corp., in a note to clients on Monday. “(Tesla CEO Elon) Musk isn't one to shy away from bold moves though and has now put his money (well, Tesla's) where his mouth is.”
Bitcoin is prone to price swings and there have been several crypto-related scandals that have prompted concern about digital assets.
Tesla, however, is not the only one that has scooped up some crypto recently. Massachusetts Mutual Life Insurance Company said in December that it had bought US$100 million in bitcoin for its general investment account.
Insurers and asset managers are talking about allocating funds to Bitcoin as an asset class and major financial intermediaries are getting involved in “the Bitcoin value chain,” said John Wilson, co-CEO and managing partner of Toronto-based alternative investment manager Ninepoint Partners LP.
“I think that is really the big part of the story, is the degree to which over … particularly the last 12 months, at an accelerating rate you've seen just a series of dominoes drop in terms of the institutional adoption,” said Wilson, whose firm recently launched a Bitcoin investment fund.
The corporate purchases could get other firms thinking about getting in on the crypto action. Prior to Tesla's move, San Francisco-based Square Inc. announced in October that it had bought US$50 million in Bitcoin. In doing so, the payment firm, whose chief executive Jack Dorsey is also the CEO of Twitter Inc., said it “believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company's purpose.”
Bitcoin's limited supply may also provide a hedge for the corporate sector against the increasing amounts of government-backed money being created by central banks in response to the coronavirus pandemic.
“The connecting fact is that people are waking up to the notion that digital currencies and Bitcoin in particular are real, they're here to stay and they're legitimate forms of investments,” said Elliot Johnson, chief investment officer and chief operating officer at Toronto-based Evolve Funds Group Inc.
Evolve announced near the end of January that it had filed a preliminary prospectus for a Bitcoin exchange-traded fund that will aim to let investors get exposure to the cryptocurrency by buying it directly.
In doing so, the firm noted that Bitcoin was gaining interest among institutional investors and being seen as an alternative to investments like gold and as a possible way to hedge against inflation.
There is also a “safety in numbers” feeling that could emerge around Bitcoin, Johnson said. This could lead to more Tesla-like investments.
“I think it's likely that we see more of that because I think the risk of investing in Bitcoin, whether you're a corporation or an institutional manager, is far lower than it used to be,” Johnson said. “And so that again helps to legitimize the asset class, because … it's easier when you're part of a group of people who are widely recognized as being a safe set of hands.”
Analysts from RBC Capital Markets on Monday noted that Square generated US$1.63 billion in Bitcoin-related revenue from its cash app in the third quarter alone. However, the RBC analysts were interested in what the far-bigger Apple Inc. could do if the massive tech company decided to dive into the digital currency world.
“If the firm decides to enter into the crypto exchange business (multibillion-dollar industry) we think the firm could immediately gain market share and disrupt the industry (while simultaneously making the U.S.A. a leader in crypto for the next 10-20 years),” the RBC analysts wrote in a report.
THE RISK OF INVESTING IN BITCOIN ... IS FAR LOWER THAN IT USED TO BE.