Why Tesla’s Bitcoin Bet is Actually More Significant Than You Think
Breaking news hit for the crypto community, when an SEC Filing became public in which Tesla Inc. declared they bought Bitcoin for 1,5 Billion Dollars to put on their balance sheet. They also plan on accepting bitcoin for payments. As they are a publicly traded company they have to disclose their holdings and intentions yearly via the SEC. Investors have the chance to align their decisions upon this public report. And even though stonks only go up, you should do your research!
How many Bitcoins does Tesla own? Well, we don’t know yet as they made the purchase in January 2021 and we’ll have to wait until next year or until Elon tells us on Twitter. I think one option is profoundly more likely than the other. One thing we know is, that there was a massive area of demand around 32000$ during January that could have been Tesla’s bids and based on that average price we’d look at a whopping 46875 BTC. While the investment itself is already bold in sheer numbers it will be able to remodel the way corporations set themselves up financially. It might also normalize, legitimize and grow Bitcoin as a store of value.
What are the implications of Tesla’s decision?
Given the big news, we should have a closer look at what’s about to happen to the Bitcoin economy and the conclusions for other big companies.
Elon is too big to fail
Tesla went in with about 8% of their cash or cash equivalents. And they plan to add to that stack. They also own 0,25% (0,32% if you discount assumably lost coins) of Bitcoins current supply. Both are big boy numbers. The US regulators will be much more careful and thoughtful in the coming regulationary process. Knowing that american investors would be strongly affected by losses will be a factor for Bitcoin-friendly regulation. Many big companies with voluminous treasuries could follow Tesla and it will be harder day by day, to impose strict regulations that would drive Bitcoin’s price down as it would seriously affect the value of said companies.
Traditional treasury strategies will be hard to sustain
The biggest positions in traditional, conservative treasuries are cash and bonds. With the current situation on both markets and shrinking central bank rates both will become harder to justify. What was the most secure investment traditionally, might now only be the most secure to depreciate in value. The dollar loses value year after year and looking at the M2 curve in the graphic below, it’s probably not getting better anytime soon. The M2 supply soared from 15500 in March ’20 to 19500 in January ’21. That’s a solid 25% in one year. You don’t have to understand national economy to see that we’re printing our way out of the crisis. Bond rates are continuously declining and in some cases even negative (Germany -0,44%). Bonds might have been attractive instruments in the past, but I don’t think those will be desirable returns in the future. The return of 1,146% in US10Yr bonds is not even beating the debatable official inflation rate of 1,4% for 2020.
The bigger the asset, the less risky it gets
As bitcoin’s market cap rose 370% in 2020 alone (and 22% after the latest Elon pump) and as we are nearing the one trillion mark, the asset gets more attractive to institutional investors as small entities won’t be able to manipulate the price as easy. The macro volatility trend is pointing downwards and while that could imply diminishing returns per year it will also stimulate the willingness of the institutions and companies to invest. BTC will become more attractive to them with a rising price and slowing volatility.
The uncertainty of the process is gone
Elon did it, so others can do it too. Michael Saylor did it as well. Saylor’s own company’s stock is up 700% since they made it public. The question of possibility is out of the way. Also no one will blame the next CEO to buy Bitcoin for the treasury for being the first one to take such unprecedented risk with shareholders money. Michael Saylor held a Bitcoin conference for corporations and made all the resources public on www.hope.com. For every question there is a tested playbook by now. Custody, official filing, marketing. Both, Elon Musk and Michael Saylor, provided a big service in de-risking the process for their successors.
The pressure from shareholders to participate in digitalisation
If you are a CEO and have some free cash lounging around, because you couldn’t throw that big christmas party for the employees this year or had some billions in proftits, you should plan some time to talk Bitcoin in your boardmeetings from now on. Because your shareholders will start to ask questions. Bitcoin is often described as digital gold. Now the original yellow rock has a market cap of close to 12 Trillion $. That’s while it is analog, hard to carry around and we don’t know it’s final supply yet. If you dig faster you will find more. Has a 5000 year track record. Bitcoin on the other hand is digital, easy to send, programmed final supply of 21 Million achieved in ca. 2140. If you try to mine more, Bitcoin’s protocol will make it harder to find Blocks and by that process regulate the supply in time and quantity. Has a 12 year track record.
There is no question that in the digital age we’ll find a new way to store monetary energy soon. How absurd is it to think our grandkids will do that in precious metals we have sitting in a vault somewhere? Bitcoin is not only the solution with more elegance and potential, but also compares to gold like the internet does to a fax machine.
Who’s up next?
After we saw the early adopters act, it’s time for others to make their move. It may have been obvious, but I think we’ll see more and more companies moving cash into bitcoin for alle the reasons I just talked about. But let’s speculate a bit here. Who is gonna be the next to come and what kind of investment are we talking? Data is from End of 2020, source is macrotrends.
Tesla: Cash on hand was about 15 Billion when they started buying, will probably buy more in the future. Might try not to get over 10% in total allocation.
Alphabet (Google): Sitting on a pile of cash of about 137 Billion. A similar sized investment compared to the size of their treasury would add up to about 10X the amount Tesla bought for. This would break the internet. A buy from google would also send the price flying for a moon mission with no return.
Apple: Cash on hand ist at about 77 Billion. Future investment could be likely. Integration with apple pay as a third party payment system is a possibility.
Amazon: Who knows what Amazon can’t do? Maybe they’ll come around with their own currency after Facebook launched DIEM. Bitcoin would be great collateral for that. They have about 85 Billion in Cash sititng in the bank.
Facebook: Launch of DIEM planned for this year, we’ll see what it means for adoption. They have 62 Billion free cash.
Microsoft: Let’s hope Bill doesn’t have too many talks about Bitcoin with his friend Warren who called Bitcoin ‘‘rat poison squared’’. A part of the 132 Billion in cash in their treasury would have a big effect on Bitcoin.
The secret favorites: A higher likelihood for an investment in Bitcoin are PayPal and Square. They either already invested in Bitcoin or are on-ramps for Bitcoin. A rumor in the crypto community is an investment by Oracle. With closer to 40 Billion their treasury is more than twice as big as Elon’s.
With the exception of Square, each of these companies has a bigger treasury than Tesla, and their engagement would also be even more meaningful than Tesla’s. Tech companies are much more likely to adopt Bitcoin anytime soon than the consumer- or other sectors. Walmart and Coca-Cola are hard-to-imagine candidates for the moment. Only time will tell, the path is paved and walked on. The significance fo the current evolution should not be underestimated and is a strong confirmation for everyone who tends to understand Bitcoin as a way to improve the given standards.
Legal disclaimer: I am not a financial advisor. The opinion given here is not a financial advice even though my excitement might make it look like such. Do your own due diligence. Even though all facts are carefully researched this content is for entertainment purposes only.
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