Tesla Bets Big on Bitcoin, Plans to Accept Cryptocurrency
Tesla #Tesla
(Bloomberg) — Tesla Inc. invested $1.5 billion in Bitcoin and signaled its intent to begin accepting the cryptocurrency as a form of payment, sending prices to a record after the vote of confidence from the electric-car market leader.
Chief Executive Officer Elon Musk’s Palo Alto, California-based manufacturer said in a filing Monday it made the bet on Bitcoin after updating its investment policy last month to allow it to buy digital assets as well as gold bullion and gold exchange-traded funds.
“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,” Tesla said in the securities filing. The leading electric-car maker’s embrace of Bitcoin lends increased legitimacy to electronic currencies, which have become more of a mainstream asset in recent years despite skepticism from some.
The embrace of a digital currency fits the maverick image of Musk, who upended the automotive industry with battery-powered vehicles and disrupted the equities market with the stock’s ascension to the blue-chip S&P 500 Index last year.
Tesla took a flier on the digital coin after it tripled last year. The cryptocurrency rose as much as 16% to an all-time high of $44,795, before trading at around $43,736 as of 10:48 a.m. in New York.
CONSTELLATION BRANDS, INC.
Twitter Banter
Musk has often tweeted about cryptocurrency-related topics and earlier this month called Bitcoin “a good thing” in an interview. Dogecoin, the once tongue-in-cheek cryptocurrency, hit a record on Monday after Musk, rapper Snoop Dogg and Kiss bassist Gene Simmons all tweeted about it.
Musk has flirted with Bitcoin for years, and in December posted on Twitter a suggestive image indicating that he’s tempted by the token. He also inquired about converting “large transactions” of Tesla’s balance sheet into Bitcoin in a Twitter exchange with Michael Saylor, chief executive officer of MicroStrategy Inc. and a prominent booster of the digital currency. In a series of tweets, Saylor encouraged the billionaire to shift dollars from the electric-car maker to Bitcoin and “do your shareholders a $100 billion favor.”
MicroStrategy issued $650 million in convertible bonds last year explicitly to use the cash to buy Bitcoin. Saylor has proselytized about the coin, recently holding a webinar on how corporate treasurers should move some cash into the digital coin.
Cash Hoard
Investors in Tesla are now taking an additional wager on Bitcoin. The investment accounts for just a fraction of Tesla’s cash hoard, but it represents a commitment to a volatile asset class that few other businesses of Tesla’s size have made.
“Tesla is hardly considered a traditional company, but when one of the largest companies in the world starts to hold Bitcoin on its balance sheet as a substitute for cash, the market takes notice,” Paul Hickey of Bespoke Investment Group wrote in a note to clients.
Tesla shares pared a gain of as much as 3% earlier to trade up 2.1% to $870.26 as of late morning in New York.
The company ended 2020 with more than $19 billion in cash on hand after having raised $12 billion in stock sales, taking advantage of an almost 750% surge in its share price. Part of the demand for those shares came from passive investors forced to buy after Tesla was added to the S&P 500 on Dec. 21. Some $11 trillion is indexed to the benchmark for American equities.
“Elon Musk has been a fan of Bitcoin and has been tweeting about it, but from a purely business perspective, there aren’t a lot of benefits from this decision,” said Michael O’Rourke, chief market strategist at JonesTrading. “The question investors will have is whether $1.5 billion is material for Tesla. Tesla had a few share offerings last year and raised some cash, but I’d still think $1.5 billion is material, just because the assets are very volatile.”
Read More
(Updates with analyst comment in 10th paragraph and adds context throughout.)
For more articles like this, please visit us at bloomberg.com
©2021 Bloomberg L.P.