Elon Musk has topped a week in a Twitter frenzy about Dogecoin, to top it off with Tesla’s investment into Bitcoin.
Today Tesla announced a $1.5 billion holding in Bitcoin. While questions remain why, on the face of it it is fairly simple. Tesla recently announced changes to their investment horizon to put to work what liquidity they have on the books (currently around $19 billion) in order to have “more flexibility to further diversify and maximize returns on our cash.”
“In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, we may invest a portion of such cash in certain specified alternative reserve assets.
Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy. Moreover, 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.”Tesla
At the time of writing, Bitcoin is now trading at $43,207, a gain of 13% over 24 hours majoritively down to the news of Elon Musk’s Tesla. But the gain is not purely down to the investment, there is also reason to believe this paves the way for Bitcoin being admitted as a currency by which to buy a Tesla, as they stated they shall “begin accepting bitcoin as a form of payment for our products in the near future.”
This news has done more than simply inflate the price of a cryptocurrency, as Jonathan Ferro explained on Bloomberg News today. Tesla’s move into holding the currency indicated to the market that the most valuable auto company in the world; trusted on the public markets; feels secure enough in the currency to hedge almost 10% of its liquidity in the asset. The shift in sentiment an act like this can have on the market may signal to other blue-chip companies that the transition for Bitcoin – from a risky digital asset, to a reputable payment solution – has now occurred.
Of course, Bitcoin may float higher for a few days and rebound down, but that is the public markets at play. One certainty is the more the most influential people in the world put money where their mouths are, and genuinely invest, we shall always see an immediate reaction in the price of an asset (possible with upside and downside).
Image: Aurich Lawson / Liesa Johannssen-Koppitz/Bloomberg via Getty Image