Tesla has recently invested huge sums of money in purchasing the much talked about cryptocurrency- Bitcoin. It is one of the biggest investment in the digital currency done by a corporate entity dealing directly with the public. But, it draws immense interest to note that even after an investment of over $ 1 billion, Tesla does not hold the largest quantity of bitcoin for a single entity’s corporate treasury.
Yes, you heard it right. Tesla has invested more than $1 billion in the cryptocurrency. According to the sources, the company has made this investment because it aims to facilitate the acceptance of Bitcoin as payment for its electric vehicles. To draw the exact numbers, the electric car maker Tesla has announced the drainage of a sum equivalent to $1.5 billion in bitcoin. With this, the Elon Musk-led firm became the biggest mainstream corporation investor in the most popular cryptocurrency.
In a filing with the US Securities and Exchange Commission or SEC, the company claimed that it has future plans to start accepting Bitcoins as payment options for its products. Not to your surprise, Elon Musk once again did his magic spell and the rate of bitcoin skyrocketed to an all-time high. The currency broke all previous record by breaching the $44,000-mark for the very first time.
Why did Tesla invest in bitcoin?
As stated earlier, the company has made clear in its SEC filing that it looks to receive payments via Bitcoin. The carmaker last month said that it had updated its investment policy to attract more flexibility in approach in further diversifying and maximising returns on the cash that lies idle in the company’s bank lockers. Tesla reported cash and cash equivalents of as much as $ 19.4 billion in its earnings report for the fourth quarter which was released last month by the company.
The plan of action lying ahead for Tesla involves investment in some alternative reserve assets including gold bullion, gold exchange-traded funds, and digital assets. The company released a statement as follows: “Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term.”
The company also said that it expects to begin accepting bitcoin as a form of payment for its products pretty soon, subject to applicable laws and initially on a limited basis, which they may or may not liquidate upon receipt.
Why is bitcoin a good investment opportunity?
The history of Bitcoin and its popularity is not too far in history. But, it has attracted more attention in the latest times than ever before, primarily on account of expanding digitisation, financial literacy, and investment mindset. The initial advocates of the most popular digital currency never aimed at using it as an asset. But, with the mushrooming of exchange platforms where it could be easily bought or sold, it soon got to be understood as an asset if value.
On the other hand, experts who do not have the same approach, have cautioned others against treating and exchanging Bitcoin as an investment by blaming the idea on the huge volatility in the price of bitcoin, even when there is not any major fundamental factor behind the fluctuations. This is what they say the retail investors should be cautious about.
How will the investment of Tesla in bitcoin change the world of digital currencies?
Well, even is the amount invested by Tesla is not very magnum in sole Bitcoin terms, the crypto investors are relying on the optimism that with this, it may start to be accepted wildly in our normal lives. The crypto traders are looking forward to this as a huge step in favour of institutional adoption of bitcoin by claiming it to be a pioneering sign to other companies about bitcoin being a solid reserve asset for any balance sheet. The same has also been agreed by Rahul Pagidipati, CEO of Indian crypto-exchange ZebPay. Moreover, people consider it as a testament of support to cryptocurrencies including bitcoin by the youth loved business icon and Tesla’s Chief Executive Officer (CEO)- Elon Musk. This sentiment has also been buoyed by his tweets (obviously). He even changed his Twitter bio to read “#bitcoin”.
However, Tesla bitcoin investment announcement has raised cautious red-flags about social media activity in relation to Bitcoin trading. CNBC said in its report that the social media declaration and several other moves by CEO Elon Musk raised immediate questions around the behaviour on Twitter because of which there have been fluctuations (mostly an increase) in the prices of cryptocurrencies like bitcoin and dogecoin. This sentiment has been triggered by posting or sharing positive messages which have intentionally or unintentionally encouraged more and more people to buy the digital currencies.
Are there any other corporations which have invested in bitcoin or cryptocurrencies, looking forward to them as a payment option?
Even when the investment by Tesla’s is the biggest bitcoin investment by a consumer-facing company, it still does not hold its largest quantum for a single entity’s corporate treasury.
MicroStrategy is a business intelligence and mobile software company based in Virginia, United States. The company holds around 71,079 bitcoins in its holdings in comparison to Tesla’s holding of 43,053 bitcoins. Another US-based financial services tech firm Square holds as many as 4,709 bitcoins.
Among the major firms which accept bitcoin as payments in some of their branches in the United States and Venezuela are Microsoft, telecommunications giant AT&T, Pizza Hut, and Subway, with AT&T being the first major US company to use cryptocurrency as an added payment option to its customers.
Is investment in bitcoin risky? If yes, then how much?
Tesla has said in its own admission in its SEC filing that the prices of Bitcoin and other digital assets have been highly volatile in the past and continue to be sow now. It also fluctuated on account of various associated risks and uncertainties. Such assets have come into existence in relatively recent history-making their long-term adoption by traders, investors, consumers, governments and businesses are unpredictable.
To escalate the problems further is the fact that digital currencies lack a physical form. They have majorly relied on the presence of technology for their creation, existence, circulation, and transactional validation. The highly decentralized aspect of the currency may subject their integrity to the threat of malicious attacks. There are also a lot of security threats attached to crypto trading and holding. On the same lines, the securities laws or other governmental regulations that apply or may apply in the coming days to such digital assets still remains unclear, uncertain and unpredictable. Tesla gave a disclaimer stating that if we hold digital assets and their values drop relative to our purchase prices, our financial condition may be harmed.