Bitcoin Hits $43K All-Time High As Tesla Invests $1.5 Billion In BTC
A filing with U.S. regulators confirms that Tesla is on board for Bitcoin payments in future. Bitcoin Hits $43K All-Time High As Tesla Invests $1.5 Billion In BTC
Bitcoin (BTC) jumped by almost $3,000 in minutes on Feb. 8 as reports emerged that Tesla had bought $1.5 billion worth of BTC.
Data from Cointelegraph Markets and TradingView tracked BTC/USD as a sudden spike to over $41,000 appeared as news of Tesla’s plans trickled in.
A filing with United States regulator the Securities and Exchange Commission (SEC) shows that the company plans to buy $1.5 worth of Bitcoin.
“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, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future,” it states.
“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. 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.”
The move follows encouraging signs from CEO Elon Musk, the world’s richest man, who last week openly stated that he was a “supporter” of Bitcoin. Since then, however, signals have been mixed, after Musk removed Bitcoin from his Twitter biography but continued tweeting and promoting Dogecoin (DOGE).
Tesla Expects To Begin Accepting Bitcoin For Payment
Tesla is now able to hold Bitcoin in reserves, thus accepting Bitcoin as payment for its cars without necessarily converting it.
Elon Musk’s Tesla Motors is following in the footsteps of MicroStrategy and other companies by allocating part of its balance sheet to Bitcoin (BTC).
In Monday’s filing with the Securities and Exchange Commission, the company announced it had purchased an aggregate of $1.5 billion in Bitcoin, to be held as an investment and store of value for its excess cash. It is currently unknown what is the average purchase price and number of BTC the company acquired.
Tesla’s investment policy has been updated at an unspecified point in January 2021, which suggests that Tesla may be holding between 35,900 and about 45,500 BTC, corresponding to average prices of $42,000 and $33,000, respectively. Given Bitcoin’s price movement in the last few weeks, the 45,500 BTC estimate is likely closer to the true amount.
As part of the policy, Tesla expects to begin offering clients the ability to purchase its products in Bitcoin, the filing states. Unlike many other similar initiatives, the Bitcoin it receives will not necessarily be liquidated as soon as possible, thus possibly adding to its reserves.
In addition to Bitcoin, Tesla’s new investment policy allows for the purchase of gold bullion and gold exchange-traded funds, or ETFs. Famous “gold bug” and Bitcoin skeptic Peter Schiff appears to have taken meager consolation from this fact, suggesting that Tesla’s BTC investment is already being sold off as the market reacts to the news.
The purchase follows Elon Musk’s entry into the world of cryptocurrency. From only holding about 0.25 BTC a friend had sent, Musk warmed up to cryptocurrencies and Bitcoin as the 2021 bull run unfolded.
After earlier calling himself “CEO of Dogecoin,” he has dedicated some tweets to the meme-inspired coin. This triggered some criticism by prominent Bitcoin fans, who saw it as irresponsible. Nonetheless, it appears that Musk’s opening to Bitcoin carries far more tangible consequences than a Twitter bio change.
Tesla Discloses $1.5 Billion Purchase of Bitcoin In Latest SEC Filing
Tesla has purchased $1.5 billion in bitcoin, according to its latest SEC filing on Monday. The electric car company made the purchase sometime since January 2021, though the filing doesn’t say what price the company locked into.
From The SEC Filing:
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, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future.
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. 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.
Did you catch that last part? Elon Musk and Tesla clearly have big ideas for being able to accept bitcoin as a payment for a new car. But one of the main reasons that bitcoin hasn’t been adopted as a widespread currency is because the price fluctuates so wildly. Would you spend any cryptocurrency to buy, say, a loaf of bread, if you could buy two loaves of bread for the same cryptocurrency tomorrow?
Telsa’s disclosure acknowledges just how volatile cryptocurrencies like bitcoin can be, and that’s precisely why it needed to make a disclosure about it to financial regulators in the first place:
The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable.
Moreover, their lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks and technological obsolescence. Finally, the extent to which securities laws or other regulations apply or may apply in the future to such assets is unclear and may change in the future. If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed.
Musk is a big believer in bitcoin, though he’s been pumping the joke cryptocurrency dogecoin over the past week for some reason. Will Musk go back to pumping bitcoin now that we know one of his companies depends on it? Almost certainly.
But you never can tell with Musk. Sometimes he’s just doing things for the joke. It might seem like $1.5 billion is nothing to joke about, but in this case, it’s not Musk’s money. And as the world’s second wealthiest man, he could stand to lose a billion here and there even if it was his cash. Or coins, as it were.
Tesla Allocates 7.7% Of Gross Cash To Bitcoin
Breaking down Tesla’s Bitcoin purchase reveals the emergence of a new corporate whale.
Tesla (TSLA) sent shockwaves across the financial markets Monday after a United States Securities and Exchange Commission filing confirmed that the electric vehicle maker has added Bitcoin (BTC) to its balance sheet.
Tesla’s latest Form 10-K filing for the fiscal year ended Dec. 31, 2020 shows a $1.5 billion allocation to Bitcoin. As Bitwise researcher David Lawant points out, Tesla’s BItcoin exposure represents roughly 7.7% of its gross cash position.
According to the most recent 10K filing, @Tesla had cash & equivalents of $19.4 billion (gross), or $98 billion (net of debt and finance leases).
— David Lawant (@dlawant) February 8, 2021
He derives those figures from Tesla’s cash and equivalents, which netted a gross of $19.4 billion by the end of 2020, or $9.8 billion net of debt and finance leases.
Tesla’s Bitcoin purchase puts it near the top of the corporate treasuries list. Only one other company – MicroStrategy – has purchased more of the digital asset as part of its strategic reserves.
News of Tesla’s participation in the Bitcoin market sent prices soaring on Monday. As Cointelegraph reported, the BTC price hit a high near $45,000, easily surpassing its previous peak. Bitcoin’s market cap exceeded $800 billion for the first time.
In addition to adding BTC to its balance sheet, Tesla plans to accept the digital asset as a mode of payment. What’s more, the BTC it receives will not be liquidated for cash but added to its balance sheet.
Tesla is spearheading Bitcoin adoption at a crucial time in the bull market. Given Elon Musk’s propensity to move markets, Tesla’s newfound Bitcoin exposure could hasten retail adoption in the short term.
Bitcoin has also piqued the interest of large corporations. Microstrategy’s Bitcoin-buying webinar last week registered over 1,400 signups.
Major Exchanges Struggle As Bitcoin Pumps On $1.5B Tesla Investment
As usual, when Bitcoin pumps and traders need stable exchanges more than ever, some are almost guaranteed to go down.
Service outages have been reported at major cryptocurrency exchanges on Feb. 8, following the news that Tesla invested $1.5 billion in Bitcoin (BTC).
As Cointelegraph reported earlier, news of Tesla’s sizeable investment broke after the discovery of a filing with the U.S. Securities and Exchange Commission. This caused Bitcoin price to jump $3,000 in a matter of minutes, eventually claiming a newall-time high of $44,850.
Problems were reported at a number of exchanges, including Binance, whose CEO CZ tweeted that a traffic influx was causing temporary delays while auto-scaling caught up, and that Tesla CEO Elon Musk was to blame.
Many Kraken users took to Twitter to complain that the site was also down, although there was no official confirmation of this from the exchange itself.
What a surprise! Theres a spike in volume and @krakenfx is down! Thank god I barely use you anymore, for new comes to crypto world, avoid them at all costs!
— Crypto Carl (@CryptoCarl_) February 8, 2021
The reported outages are just the latest in a seemingly never-ending cycle of issues to occur at major exchanges when traffic volume spikes, causing some in the crypto community to cry “foul play”.
Despite assurances from the exchanges that past issues have been addressed, platforms continue to crash on a regular basis during high-traffic periods such as price pumps; the time when most investors want their service to be at its most stable.
Aside from news of Tesla’s $1.5 billion Bitcoin investment, the report filed with the SEC also suggested that Tesla would start to accept Bitcoin as payment for its cars. As the company can now hold reserves in Bitcoin, it would not need to immediately liquidate tokens acquired in this manner.
Bitcoin Goes Into Ludicrous Mode As It Briefly Flippens Tesla
The crypto asset overtook Tesla Motors in market capitalization following an announcement that the car manufacturer had invested in Bitcoin.
Earlier this morning, Tesla Motors announced that it had allocated part of its balance sheet to Bitcoin. Not even two hours have passed, and the crypto asset’s market cap briefly exceeded that of the car manufacturer itself.
For a short time today, Bitcoin (BTC) held a market cap of $807,869,728,188 according to data from AssetDash, surpassing Tesla’s at $807,829,441,685. Bitcoin held the 7th spot on the list following the announcement, with both Tesla and BTC sitting comfortably above Facebook’s market cap, $765 billion at the time.
The major flippening occurred this morning as news broke Tesla had purchased an aggregate of $1.5 billion in Bitcoin, to be held as an investment and store of value for its excess cash. Following the announcement, the price of BTC surged to a new all-time high of more than $44,000 before retreating to $43,202. Tesla’s stock price rose by more than 2% as markets opened, and is $871.43 at the time of publication.
Bloomberg Intelligence strategist Mike McGlone recently predicted that this Tesla investment may be the catalyst needed to push Bitcoin’s market cap past $1 trillion for the first time. The total cryptocurrency market capitalization hit this value early last month as the price of BTC, Ether (ETH), and many altcoins surged.
Ex-OCC Chief Brooks Calls Tesla’s Bitcoin Buy A Bit ‘Scary’ For Rest Of World
Brooks said the U.S. money supply will have risen 40% over the last 12 months once the most recent round of stimulus is done.
The debasing of global currencies is why companies like Tesla (TSLA) and MicroStrategy (MSTR) are investing in bitcoin and that should be troubling for the rest of the world, former acting U.S. Comptroller of the Currency Brian Brooks said Monday on CoinDesk TV.
* “For people who are invested in bitcoin it’s exciting news,” said Brooks, who left the OCC last month. “For people who are looking at the rest of the world it’s actually a little bit [of] scary news.”
* Brooks was responding, in part, to Tesla’s announcement Monday it has invested $1.5 billion in bitcoin and would be looking to acquire more digital assets. That news sent the price of bitcoin to a new all-time high.
* The former acting comptroller noted the U.S. money supply has risen 25% since the start of the pandemic and will be up 40% compared with a year ago once the most recent round of stimulus is done in the next few days.
* “That’s crazy, right?” Brooks asked. “The way inflation works is the more of asset you have the less valuable it is. That would explain why a lot of institutions want to have bitcoin sitting in their treasury because it’s a lot more stable source of value over the long haul, potentially.’
* Brooks declined to say what his next career move will be, only he hopes to be in the space for a long time to come.
Crypto Comes To S&P 500 Via Tesla’s $1.5 Billion Bitcoin Bet
When Tesla Inc. joined the S&P 500, people balked. Wasn’t that a lot of volatility to embed in the world’s most important stock index? Turns out they had only part of the picture.
Founder Elon Musk opened a new chapter in the saga of his electric-vehicle maker with a disclosure Monday that Tesla invested $1.5 billion in Bitcoin and intends to begin accepting the cryptocurrency as a form of payment. The move comes less than two months after the company was added to the S&P 500 in the index’s largest-ever inclusion.
For anyone who worried Tesla’s high price and share turbulence was an issue for passive investors, this is something new to consider. Tesla is one of the S&P 500’s biggest members with a weighting of almost 2%, meaning at least a dollop of the roughly $11.2 trillion of money tracking the benchmark is now exposed to a cryptocurrency known for its wild swings.
“It’s absolutely a fascinating story to think S&P 500 investors now are investors in Bitcoin,” Phil Toews, chief executive officer of asset manager Toews Corp. “Just absolutely mind-blowing.”
Tesla isn’t the first to make a foray into cryptocurrencies — other companies have made similar investments. MicroStrategy Inc., a software firm, has spent about $3 billion on Bitcoin, while Square Inc., headed by longtime crypto advocate Jack Dorsey, announced that it converted about $50 million of its assets into the coin as of the second quarter of 2020.
But those companies aren’t members of the S&P 500, limiting the number of mom-and-pop equity investors who were exposed to Bitcoin.
Tesla has surged 460% over the past year and more than doubled since the S&P Dow Jones Indices said in November that the vehicle maker would be added to the index the following month. The announcement spurred warnings over what impact Tesla’s entry would have on the S&P 500, with the likes of Research Affiliates founder Rob Arnott cautioning that benchmark overseers tend to “buy high and sell low.”
While Tesla’s Bitcoin purchase indirectly exposes S&P 500 investors to crypto, at least one knowledgeable observer doubts it would’ve kept the carmaker out of the storied index.
“The index is designed to measure the U.S. equity market, not to judge or second-guess management decisions on cash management or strategy,” David Blitzer, who headed the S&P Dow Jones Indices selection committee until 2019, said in an interview. “The index methodology doesn’t provide for dropping a company based on a management decision except in extreme cases such as an impending bankruptcy.”
Ray McConville, an S&P Dow Jones spokesman, declined to comment on Musk’s move.
Bitcoin, coming off a 300% gain in 2020, has added 50% this year. It hit an all-time high of $44,795 on Monday following Tesla’s news. Its price has been sensitive to Musk’s proclamations on cryptocurrencies in recent weeks — it surged at the end of January, for instance, after Musk changed his Twitter profile to “#bitcoin” with an emoji, which he later took down.
He again sent waves through the cryptosphere a few days later when he declared on social audio app Clubhouse that he was a supporter of the largest digital asset.
In December, Musk inquired on Twitter about converting “large transactions” of the electric-car maker’s balance sheet into the coin. MicroStrategy CEO Michael Saylor urged him to make the move, writing that he’d be doing his investors a “favor,” and adding that other S&P 500 firms would follow his lead.
Many analysts argue against such a tactic, often citing Bitcoin’s volatility as well as its vulnerability to hacks and fraud. The token has posted an average daily move of 5.2% this year, according to data compiled by Bloomberg. That compares with swings of 0.8% for the price of gold, which is sometimes compared with digital assets.
To JJ Kinahan, chief market strategist at TD Ameritrade, Tesla’s move could mean heightened volatility for the index overall.
“You can buy any blue-chip company and they probably have some other things going on” that investors might not be aware of, he said by phone. “Now it’s just a matter of do you believe that many of these companies are becoming more volatile than you’re comfortable with?”
Elon Musk’s Embrace Moves Bitcoin Even Further Into The Mainstream
Tesla’s $1.5 billion investment in the digital currency is boosting prices, but using the volatile crypto asset could prove a challenge for consumers.
Tesla Inc.’s $1.5 billion splash on Bitcoin and its plan to accept the digital currency as payment is shooting crypto prices to record highs Monday. But fans have a question for Elon Musk: What took him so long?
The world’s richest person and Tesla chief has long been a cryptocurrency supporter. Just last Thursday he sent Bitcoin alternative Dogecoin to the stratosphere when he tweeted an illustration of himself thrusting its canine mascot to the sky.
The Tesla-Bitcoin Singularity Is Here At Last
Elon Musk’s preoccupation with crypto has now been taken to its logical conclusion. It is as disconcerting as it is inevitable.
Tesla bought Bitcoin. It feels as if that sentence should properly begin with “Imagine if …” and a wry chuckle. But no. Imagine no longer.
Tesla Inc.’s annual report disclosed the electric-car maker updated its investment policy last month and then bought $1.5 billion of the crypto. That news added roughly $5,000, or 14%, to said crypto on Monday morning, sending it to an all-time high. Tesla’s own stock rose about 3%, adding roughly $11 billion in market cap, because — well, probably because of this. I don’t know.
On the face of it, a change in investment policy that simply by its disclosure adds hundreds of millions of dollars in value to a company’s portfolio 1 — and billions to the company’s market cap — in a sort-of virtual virtuous circle seems like a winning change. Ordinarily, such things lie forgotten in the 10-K.
Yet it’s hard to shake the feeling that it is just inadvisable to be (forgive me) crossing the memes like this. It’s as if the earth has shifted a billionth of a degree on its axis or we are approaching some singularity in the capital markets with Lovecraftian overtones.
Tesla’s explanation for the move is relatively straightforward: “To further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Fair enough. You may have noticed cash doesn’t earn very much these days.
(Tesla’s current stock price may reflect that issue to some degree.) Also, companies routinely diversify their cash holdings, especially if they operate in multiple countries.
Bitcoin is anything but routine, though. New, stateless, volatile, subject to cybertheft and potential government regulation, it is a currency only if you squint really hard and can jump through the hoops of actually using it. Tesla’s comment that it expects to begin accepting Bitcoin as payment in the near future is irrelevant; doing that doesn’t require hoarding it ahead of time.
On the other hand, the casual reference to Tesla taking Bitcoin as payment down the road is like digital catnip, helping to boost the value of that $1.5 billion bet. And it is a bet.
Tesla is speculating with $1.5 billion of the roughly $19 billion it had on the balance sheet at the end of December, $12 billion of which was raised from selling more equity into last year’s frenzied rally. If confirmation were needed that Tesla announced several at-the-market offerings in 2020 simply because it could, it’s hard to think of one that is more resounding.
The move raises the usual questions about Tesla’s governance. Apart from the speculative nature of it, the fact that CEO Elon Musk has been tweeting heavily about cryptocurrencies of late should ring alarm bells in whatever passes for Tesla’s boardroom.
Not necessarily because anything untoward has happened, but it’s fair to say Musk has some history to live down when it comes to the tweeting. Giving authorities any reason to scrutinize Tesla is inadvisable. One has to wonder what a regulator might make of this tweet from just a month before the “updated” investment policy was approved.
I guess you could argue having a currency that is only “almost as bs” as fiat money helps to diversify Tesla’s exposure on the bs axis, leading to a lower weighted average of bs ratio or some such. I’m not a corporate treasurer.
One way in which the foray into crypto certainly helped on Monday was taking the spotlight off some less exciting news. Tesla was recently summoned by Chinese regulators to answer complaints about quality and safety issues with its cars. China is crucial for Tesla because, as the 10-K also revealed, revenue in this growth company’s home market in the fourth quarter was still lower than two years previously.
Having witnessed Gamestonk, we surely all knew that this Venn diagram eclipse of the most speculative car company in the world and the most speculative “currency” in the world was coming. Tesla sells stock because it can and then uses some of the proceeds to buy Bitcoin because it can. It’s as simple, and disconcerting, as that.
Crypto Stocks Rally With Tesla Pushing Bitcoin Above $44,000
Cryptocurrency-exposed stocks soared on Monday along with Bitcoin, which extended a weekend rally after Tesla Inc. said it invested $1.5 billion in the currency and will start accepting it as a form of payment.
MicroStrategy Inc. jumped as much as 19% to the highest since 2000; Marathon Patent Group Inc. climbed as much as 34% to the highest since November 2017; Riot Blockchain Inc. surged as much as 33%; Bit Digital Inc. climbed as much as 25%; Ebang International Holdings Inc. added as much as 9.9%; and Silvergate Capital Corp. rose as much as 24% to a record.
In London, Argo Blockchain Plc rose as much as 23% and On-Line Blockchain Plc surged as much as 27%.
PayPal Holdings Inc. added as much as 4.9%, also hitting a fresh record. Shares of the payments platform have gained nearly 40% since it said in October that it would allow customers to buy, hold and sell cryptocurrencies directly from their PayPal account, marking a big step forward for the industry. PayPal climbed further last week after earnings shed light on its crypto initiatives.
Square Inc,. which is led by Bitcoin advocate Jack Dorsey and which put $50 million in Bitcoin on a crypto “empowerment bet” in October, gained as much as 9.9% to a fresh record.
Dogecoin, the once tongue-in-cheek cryptocurrency, hit a record on Monday as well, after Tesla Chief Executive Elon Musk, rapper Snoop Dogg and Kiss bassist Gene Simmons all tweeted about it. Tesla shares gained as much as 3%.
Tesla’s $1.5B Bitcoin Purchase Leaves Treasury Experts Scratching Heads
Some treasury experts are finding it difficult to understand why Tesla recently bought $1.5 billion worth of Bitcoin — the best performing asset of the last decade.
Corporate treasury commentators are criticizing Tesla’s $1.5 billion Bitcoin splurge, echoing the well-worn rhetoric of BTC’s volatility.
Speaking to Financial Times, Jerry Klein, managing director at New York-based investment management firm Treasury Partners said that there was no use case for plowing corporate cash into Bitcoin.
Another critic quoted by FT, Campbell Harvey of Duke University in Durham North Carolina, called Tesla’s Bitcoin acquisition “unusual” and “risky” adding that it will not serve as a hedge against market uncertainties.
Critics of Tesla’s Bitcoin purchase say the move potentially puts shareholders at risk given the volatility of Bitcoin. Some point to historical crashes like the 2018 bear market and the 50% dump that occurred on Black Thursday in March 2020.
However, these arguments seem to leave out Bitcoin’s established “no look-back price trajectory” wherein each crash does not revert to a price level before the previous all-time high.
Also, Bitcoin’s parabolic bounce from its lows does not appear in these anti-BTC arguments. For instance, the Black Thursday crash of 2020 was followed by an almost eight-fold increase by the end of the year.
Since August 2020, business intelligence firm MicroStrategy has been acquiring Bitcoin and has spent about $1.1 billion in buying 71,079BTC. At the current price, the company’s Bitcoin stash is valued at almost $3.3 billion — a 200% gain on its investments.
Bitcoin was the best performing asset of the last decade, gaining almost 9,000,000% and far outstripping all other asset classes. Indeed, as of the time of writing, only Bitcoin bought above the $47,000 price level is currently at a loss.
Speaking to CNBC, MicroStrategy CEO and Bitcoin bull Michael Saylor countered the volatility rhetoric, saying holding cash reserves amounted to a stable loss of 75% of their shareholder value over the last decade whereas investing in BTC offered a volatile appreciation that doubled every six months. According to Saylor:
“Companies that are converting their dollars into Bitcoin are taking a non-performing asset [cash] and they are turning it into the best performing asset. Bitcoin has been appreciating at something like 230% year after year for a decade […] I’d rather have a volatile appreciation at 230% a year than a stable depreciation at a rate of 15 to 20% a year.”
The billions of dollars in economic stimulus packages by major economies are also expected to exert further downward pressure on fiat currencies.
Apart from the backlash over Tesla’s Bitcoin investment, these corporate treasury critics also said that other companies will not be lining up to follow Tesla’s lead.
However, Tesla is only the latest in an expanding cast of public companies holding Bitcoin on their balance sheets. As previously reported by Cointelegraph, 1,400 firms signed up for MicroStrategy’s Bitcoin-buying bootcamp.
Indeed, Apple bull RBC Capital Markets recently clamored for the iPhone maker to follow Tesla’s example in buying Bitcoin. RBC even called on Apple to go a step further by creating a Bitcoin exchange.
The largest cryptocurrency by market capitalization is currently up almost 60% year-to-date.
Stablecoin Flows Hint At $50K Bitcoin After Tesla Pump Liquidates $500M In BTC Shorts
Around $500 million worth of positions were liquidated within hours as the Tesla news caused Bitcoin to spike over $46,000.
Bitcoin (BTC) has extended its rally over $46,000 on Feb. 9, a day after a U.S. Securities and Exchange Commission (SEC) filing revealed that Tesla bought $1.5 billion worth of BTC. The price of Bitcoin immediately soared from around $39,000 to $45,000 across major exchanges on Feb. 8 after the news began to spread.
Mass Bitcoin Liquidation
As the Bitcoin price initially rallied to $45,000, it caused $500 million worth of short positions to get liquidated.
The term liquidation in the Bitcoin futures market refers to when the price of BTC moves quickly in a short period beyond the liquidation prices of futures contracts.
For instance, if a trader borrows 10 times the base capital and trades a $100,000 Bitcoin position with $10,000, the position would get liquidated after a 10% price movement.
According to the data from Bybt.com, $1.34 billion worth of futures positions in the futures market were liquidated in the past 24 hours.
This indicates two trends; first, the derivatives market was extremely overcrowded with short-sellers. When the Tesla news broke, it caused a massive short squeeze, liquidating hundreds of millions of dollars worth of positions in several hours.
Second, it shows that many investors did not anticipate Tesla to actually invest in Bitcoin even after Musk changed his bio to “Bitcoin” on Jan. 29, 2021.
What Happens Next?
Meanwhile, cryptocurrency traders are cautious due to the extremely high funding rates across major futures exchanges.
Funding rates increase when the majority of the market are buying or longing Bitcoin. When the funding rates are overly high, the market is vulnerable to a long squeeze, which can cause an intense short-term drop.
Nevertheless, a cryptocurrency trader known as “Loma” says that the market is not overconfident just yet. He said that when a point comes where traders are overly confident and do not expect a major drop, that is when a correction is likely to occur. He said:
“I want us to get to that point where people start talking about how it’s impossible for us to retrace 70-90% before I think of closing my spot $BTC positions. I remember feeling like there’s no way $BTC goes back below $10k in 2018. We went to ~$3,500. Never say never.”
Meanwhile, CryptoQuant CEO, Ki Young Ju, emphasized that there is newfound buyer demand as stablecoin inflows into exchanges were spotted. In the near term, this would likely act as a catalyst for Bitcoin. He wrote:
“You can call me crazy, but I think we’ll see 50k soon. Just got another stablecoins deposit signal.”
Elon Musk’s decision to invest $1.5 billion of Tesla Inc.’s cash in bitcoin is financial dynamite that unites two speculative bubbles. There’s plenty to suggest the move is inadvisable. Though small in the context of Tesla’s $830 billion market value, this is still a material portion of Tesla’s $19.4 billion cash reserves to park in such a volatile asset.
Tesla wouldn’t be the first car company to operate as a quasi hedge fund. For a time Porsche made tons of money trading derivatives, almost bankrupting itself in the process. Owning cryptocurrency sits badly with Musk’s green ethos: Some Bitcoins are mined with renewable power but the industry still leaves a sizeable carbon footprint.
Musk’s purchase has boosted Bitcoin’s price by almost 20% so in one sense he’s won already. Unfortunately his bet won’t improve Tesla’s reported earnings or boost the value of its cash reserves. That’s because cryptocurrencies — despite the name — aren’t classified as cash or equivalents for accounting purposes.
Nor are they considered a financial investment under current accounting rules. Instead they’re deemed an intangible asset whose value is reported at cost in corporate accounts and must be written down if the price declines. The value cannot be written up again until they’re sold. This is a significant disadvantage and might discourage other corporate treasurers from following Musk’s lead.
It’s also not entirely fair, whatever you think about Musk gambling with Tesla’s money. Shouldn’t accounting standards be updated for the crypto era?
Here’s The Relevant Bit From Tesla’s 10-k:
Digital assets are considered indefinite-lived intangible assets under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale.
As we currently intend to hold these assets long-term, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase.
In plain English, if the price of Bitcoin price suddenly fell by, say, a third compared to the Tesla’s cost acquiring it — pretty plausible in the context of Bitcoin’s historic volatility — then the carmaker’s GAAP earnings would be short $500 million during that quarter. Tesla will book no corresponding gain if the price rises again. The volatility of Tesla’s earnings could increase even more if customers start paying for their cars in Bitcoin, as Musk will soon allow, and the company elects not to convert it immediately into U.S. dollars.
This isn’t just a Tesla problem. Business analytics company MicroStrategy Inc. had invested a whopping $1.1 billion in Bitcoin as of Dec. 31. It even decided to make Bitcoin its primary treasury reserve asset, and so far the decision has paid off: Its holdings have almost trebled in value. But because Bitcoin’s price has fluctuated, MicroStrategy has already needed to book a total of $71 million of impairments, including $26.5 million in the fourth quarter.
The accounting treatment is weird because if you can buy a Tesla with Bitcoin then it’s clearly serving as a medium of exchange, albeit a volatile one that’s not state-backed. Foreign currencies can be volatile too — just ask Argentina. There’s also a clearly observable market price for Bitcoin as it’s traded on exchanges. In view of tentative efforts by airlines to accept cryptocurrencies as payment, industry body IATA has argued that these tokens should be “treated as cash if they function as cash.”
Analysts will doubtless adjust Tesla’s reported financials to reflect the current value of its Bitcoin holdings but it’s an inelegant and less transparent approach.
Unfortunately, the standard setters don’t appear to be in a rush to embrace the crypto revolution. The Financial Accounting Standards Board, whose job is to oversee Generally Accepted Accounting Principles (GAAP), voted unanimously not to add cryptocurrencies to its technical agenda in October.
One can understand the reluctance. Accounting rules were created before cryptocurrencies were invented. The bean counters don’t want to be blamed if companies get their fingers burned.
Still, with interest rates at zero, I doubt Tesla will be the last tech company to try to earn a better return on its cash holdings. Anyone who does so is taking a massive financial risk but they should be allowed to record the value of their Bitcoin at the current market price. Anything else gives investors an incomplete picture.
A Brief History Of Elon Musk’s Devotion To The Crypto Cause
Bitcoin surged to a record on Tuesday above $48,000 after Tesla Inc. announced a $1.5 billion investment. That capped Elon Musk’s years-long flirtation with cryptocurrencies, which has mostly played out in Twitter memes — some of them market-moving.
Tesla’s decision to accept Bitcoin as payment for its electric cars may help bring the virtual currency into the mainstream of global finance.
Yet its famed volatility has led to warnings from regulators that investors could be wiped out.
Here are some choice moments in the Tesla chief executive officer’s enthusiasm for all things crypto.
For many observers it started when a blog post shared on digital-currency sites suggests Musk is Satoshi Nakamoto, the mysterious cryptocurrency founder. The billionaire rejects the claim and says he forgot where he put his Bitcoin.
Musk’s Twitter page is among a handful of accounts that were apparently hacked to promote a crypto scam. Investors were duped into giving away at least $120,000 worth of Bitcoin, said to be spirited away into other accounts by the hackers. A 17-year-old Florida high school graduate and two others were charged by U.S. authorities in relation to the alleged hack.
The billionaire tweets that month, “Excuse me, I only sell Doge!” That’s seen as a reference to Dogecoin, a cryptocurrency started as a joke in 2013 that features a Shiba Inu dog as a mascot.
Musk asks about converting “large transactions” of Tesla’s balance sheet into Bitcoin during a Twitter conversation with Michael Saylor, CEO of MicroStrategy Inc. “Are such large transactions even possible?” Musk tweeted at the time.
Dogecoin becomes a retail-trader obsession thanks in part to a Musk tweet showing a “Dogue” magazine cover. Though no explanation was given, many users take that as another reference to Dogecoin.
January 29, 2021
Musk adds “#bitcoin” to his Twitter profile page, without an explanation. Within minutes, Bitcoin jumps as much as 15%, surging above $38,000, amid speculation that he might be a Bitcoin investor.
Feb. 1, 2021
Speaking on the social audio app Clubhouse, Musk declares he’s a Bitcoin supporter. “Bitcoin is a good thing,” he said, adding that he was “late to the party” and should have bought the cryptocurrency eight years ago.
Feb. 4, 2021
Musk breaks his self-imposed Twitter hiatus and sends a series of tweets about Dogecoin. “No highs, no lows, only Doge,” he posted.
Feb. 8, 2021
Dogecoin briefly touches a record after Musk as well as fellow celebrities Snoop Dogg and Gene Simmons tweet about it.
Feb. 8, 2021
Tesla announces a $1.5 billion investment in Bitcoin and a plan to accept digital currency as payment for electric cars. Bitcoin’s price gains more than 20% from its level before the announcement.
Dogecoin’s market value now sits at about $10 billion, making it the 10th biggest among cryptocurrencies, according to CoinMarketCap.
Lawyers Warn Elon Musk’s Bitcoin Pumping Tweets Could Attract SEC’s Ire
Elon Musk’s rampant Twitter activity could get him into hot water with the SEC according to lawyers.
Legal advisors have warned that Tesla chief executive Elon Musk could come under scrutiny from the U.S. Security and Exchange Commission over his social media activity around Bitcoin.
On Monday, Feb. 8 Tesla announced in an SEC filing that it had purchased $1.5 billion worth of Bitcoin and will soon start accepting BTC payments. Shortly afterwards, prices of the asset skyrocketed to a new all-time high of a little over $48,000.
Partner at Linklaters and former branch chief of the SEC’s division of enforcement, Doug Davison, told the UK’s Telegraph newspaper:
“It would not be surprising—given the focus on the chief executive’s Tweets, Bitcoin pricing and recent dramatic market moves—for the SEC to ask questions about the facts and circumstances here,”
Former vice president of the European Central Bank, Vitor Constâncio, echoed the sentiment concluding that the “SEC will look into this,”
It was not disclosed when Tesla had made this investment. In December, Musk said that Tesla could buy bitcoin, and this was followed by many statements that he supported bitcoin. Bitcoin kept going up & Tesla investment has appreciated. The SEC will look into this 5/
— Vitor Constâncio (@VMRConstancio) February 8, 2021
The SEC and the Commodity Futures Trading Commission have the ability to investigate should they suspect market manipulation.
Musk has been very vocal on Twitter shilling Bitcoin and DOGE on numerous occasions which contributed to Bitcoin activity on the social media platform spiking to its highest levels. DOGE spiked to new all time highs following Musk’s endorsement.
There is little doubt that Tesla’s public foray into Bitcoin, and Musk’s influential tweets to his 46.5 million followers, have contributed to this latest price spike.
He is still currently shilling Dogecoin with this recent tweet late on Feb. 10 stating he is buying the asset. DOGE spiked 13% following that particular tweet a few hours ago.
Bought some Dogecoin for lil X, so he can be a toddler hodler
— Elon Musk (@elonmusk) February 10, 2021
Musk is no stranger to Twitter controversy; he has been previously accused of posting misinformation on the platform regarding Covid-19 and the closure of one of his factories.
In another incident he suggested that Tesla stock price was too high, resulting in a subsequent price slide. The SEC sued Musk for fraud, charging the Tesla chief with making “false and misleading tweets,” but he settled with the regulator soon after.
Youngest HODLer Ever? Elon Musk Buys DOGE For His 9-Month-Old Son
“Toddler HODLer” may soon become a new meme in the crypto space.
Elon Musk’s child with Canadian musician Claire Elise Boucher, or Grimes, may now be one of the youngest public crypto users on record.
In a tweet today from the Tesla CEO, Musk said his 9-month-old son is now the proud — or maybe just fussy — owner of some Dogecoin (DOGE), referring to him as a “toddler HODLer.” The boy, born last May, is named X Æ A-Xii — pronounced “ex ash eh twelve” — with the last two syllables an homage to Lockheed’s A-12 aircraft.
Bought some Dogecoin for lil X, so he can be a toddler hodler
— Elon Musk (@elonmusk) February 10, 2021
Musk’s recent tweets have likely fueled the price of DOGE since January. The token started 2021 at roughly $0.005 but has since risen more than 1,400% to reach $0.0758 at time of publication. Many of the Tesla CEO’s memes and bullish opinions of DOGE have preceded a price surge.
However, the world’s second richest man is not the only billionaire who seemingly thinks the token has potential. Dallas Mavericks owner Mark Cuban said on Monday that DOGE is the “best entertainment bang for your buck available” on the crypto market and doesn’t think it’s a “bad look” for investors to consider it.
With cryptocurrencies becoming more prominently featured in the news, there are many people under 18 years old interested in how they can legally own Bitcoin (BTC), Ether (ETH), or any number of altcoins. Though it’s illegal for many minors to hold cryptocurrencies on exchanges, parents like Musk can often gift their children digital assets. Cuban has also purchased his 11-year-old son Jake $5 worth of DOGE.
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