Tesla’s Bitcoin-Equals-Cash View Isn’t Shared By All Crypto Owners
Elon Musk’s decision to stash 8% of Tesla Inc.’s cash reserves in Bitcoin animated the crypto universe. Tesla’s Bitcoin-Equals-Cash View Isn’t Shared By All Crypto Owners
Now was Bitcoin’s moment, its arrival on the fourth-biggest company’s balance sheet is a gateway to wider acceptance as a cash alternative. Longtime booster Mike Novogratz suggested soon “every company in America” would accept it as payment. Michael Saylor, whose company, MicroStrategy Inc. parked more than $1 billion in Bitcoin, said the dollar’s days as a reserve currency are toast. RBC Capital Markets analyst Mitch Steves urged Apple Inc. to follow suit.
Observers outside the cheer-leading world of Bitcoin took a different view. While a broader adoption is possible, what’s more likely is that Bitcoin remains what it’s almost always been — a speculative asset that an odd shop or two takes in lieu of cash.
“I’m certainly very skeptical that there’s going to be widespread movement in this direction in the near term,” said Chester Spatt, finance professor at Carnegie Mellon Tepper School of Business who served as chief economist and director of the SEC’s Office of Economic Analysis. “You have huge volatility, so that raises a lot of questions.”
Even industry participants are doubtful, noting that the base case for Bitcoin has shifted from a medium to exchange goods and services to that of “digital gold,” a store of value that promotes “hodling” crypto assets rather spending them in business transactions.
That’s especially been true as investors worldwide seek higher returns with central banks keeping borrowing rates near zero and governments providing abundant stimulus during the Covid-19 pandemic, fueling concern that inflation is imminent.
But Tesla’s flier poses a logical retort. If the company moves cash into Bitcoin, then it’s equating the two. That may partly explain why the electric-car maker also said it will eventually accept the electronic coin as payment for its cars. If it’s cash, why can’t someone use it as such?
The real test of its conviction in crypto, Spatt said, will be in how Tesla lists its vehicles. “Are they going to price their cars in Bitcoin or are they going to price their cars in dollars?” he said. “That’s the key to what this means.”
Even if Tesla and Musk see it virtually the same as a currency — a place to park reserves, something to buy a Model 3 with — most businesses and virtually all of the American public, see it as something else, definitely not the same as cash.
Last year, as Bitcoin rallied 300%, just 0.3% of all transactions that involved cryptocurrencies were by a merchant. The rest were trades, whose volume has surged, according to researcher Chainanalysis. Meanwhile, more than 15,000 businesses worldwide U.S. accept Bitcoin or offer crypto ATMs, according to data from Fundera and coinmap.org.
PayPal Holdings Inc., which began to accept crypto in October, expects to allow the 29 million merchants on its network to do the same. Even so, merchants will be paid in traditional currencies such as the dollar rather than in cryptocurrencies when PayPal customers make purchases.
Musk’s own accountants can’t treat Tesla’s Bitcoin the same as cash. They’ll have to mark down the holding’s value if the price drops, but can’t mark it up until the gain is realized — all of which underscores the speculative nature of the move.
The world’s richest man is known for his publicity stunts and need for attention. He infamously involved himself in the rescue of a trapped Thai youth soccer team. He smoked a joint on podcaster Joe Rogan’s show. Lately, he’s been tweeting about Dogecoin, another digital token created as a joke.
Musk can say Tesla will take the coin for a car, but years of data show that most investors see it as a speculative asset, not something to have in a traditional wallet. But giving his fans the potential to use it as cash only heightens their attraction to Tesla and Bitcoin.
“Taking payments in Bitcoin is more of a sign of approval for crypto assets gaining mainstream adoption, rather than something that customers will do en masse,” said Luis Cuende, co-founder of Aragon, a platform for building and running decentralized organizations, with over $650 million in assets under management. “Tesla, as the coolest car manufacturer, keeps on improving their image and brand by positioning themselves as the edgy early adopters.”
So far, the switch from cash to Bitcoin has paid off. Hovering near $40,000 before Tesla’s filing landed Monday, Bitcoin has since rallied about 20% to a record $48,215.
“Bitcoin’s original goal was to be digital cash,” said Gil Luria, head of institutional research at D.A. Davidson & Co. “But most people that hold Bitcoin think of it as an investment.”
If Tesla Bubble Bursts, Catastrophe Won’t Follow
Not all bubbles are equal. Britain’s bicycle-stock bubble of the 1890s holds lessons for today’s electric-vehicle mania.
Recent experience and financial lore have created the impression that the bursting of market bubbles brings economic destruction. But it isn’t always so. The excess in today’s story stocks—electric cars, clean power and cannabis in particular—surely poses a threat to the wealth of their shareholders. Even if there is a wider bubble, it might not be a catastrophe for the country.
The experience of the past few decades suggests the opposite. Japan is still scarred by the 1980s property and stock bubble, the dot-com bubble led to massive losses and the subprime crash created a global crisis.
But not all bubbles are equal. The economic dangers of a stock bubble come from people taking on debt to buy shares and from companies overinvesting. When the bubble pops, overextended shareholders have to cut spending or go bankrupt. Companies suddenly faced with investors demanding a return have to lay off workers and slash investment.
None of this is an issue for the obvious bubbles under way in the fashionable stocks of the moment. Tesla is valued so highly it is now the U.S.’s fifth-biggest company by market capitalization. Even if the electric-car maker vanished tomorrow, it would have an insignificant effect on the economy, as Tesla’s operations are tiny.
It is mostly equity-financed, so its failure wouldn’t start a domino line of bank failures. And while shareholders would be hurt, there’s no reason to think that would lead to a collapse in spending across the country.
The closest parallel is not the dot-com bubble, for all the similarities, but the British bicycle mania of the 1890s. Bicycles were the electric cars of their day: breakthroughs in tire and gear technology made them into convenient and environmentally friendly transport, albeit still expensive.
Investors rushed in and stock promoters spotted the opportunity to float any company with a connection to the industry, mostly in Birmingham. Heavy investment led to further breakthroughs; and, at the peak, bicycle-related patents made up 15% of all the patents issued.
Bicycle stocks were helped by what was then the lowest yield ever on U.K. government bonds, which encouraged further mini-bubbles in Australian mining and breweries.
In their book “Boom and Bust,” academics William Quinn and John Turner from Queen’s University, Belfast, document 671 new bicycle companies, raising £27 million in 1896 alone—equivalent to 1.6% of British gross domestic product that year. By comparison, the fast-growing IPO alternative of SPACs raised about 0.4% of U.S. GDP last year and are running at an annual rate of about 1.3% so far this year.
Half the bicycle companies that joined the market failed by the end of the decade. The speculators who held when the bubble burst were hit by a 71% fall in bicycle stocks from their peak in just 18 months.
The regional economy suffered when the stocks collapsed, but Britain as a whole barely noticed, and the rest of the market wasn’t much affected.
What if today’s excesses aren’t just in the speculative story stocks like Tesla, but across the market? I don’t think Big Tech—including Apple, Amazon, Microsoft and Facebook —is a bubble, because high valuations can be broadly justified by very low Treasury yields.
But if I’m wrong and shares in the highly valued technology and associated sectors did crash, it probably wouldn’t be that bad.
Sure, investors—that’s you and me—would lose money. But with a few exceptions these companies aren’t borrowing or issuing new stock to fund new investments, and their investors aren’t all that leveraged. If Apple’s share price halved, it would make no difference to the underlying business. That is different from the dot-coms, which were forced to slash spending when the market crashed, and they lost the ability to issue expensive new shares.
“The historical lesson is that stock market crashes don’t really cause that much damage,” Mr. Quinn says. “Bubbles funded by banks were the really really destructive ones.”
Black Monday in 1987 is a classic example: harrowing for shareholders, but irrelevant to the economy.
Of course, we shouldn’t be too confident that everything will be fine. So let’s go through the risks.
Unlike past episodes, the Federal Reserve can’t help out so easily now. Rates are already on the floor. After the broader market fell six months after the dot-com bubble burst the Fed rapidly cut rates from 6.5% to 1.75%, and eventually 1%, helping protect the economy from the market decline.
Corporate debt is also exceptionally high. Weaker companies have borrowed to survive the pandemic lockdowns, while stronger companies have borrowed to buy back stock. Lower rates mean debt is more affordable than ever before, but if markets lose confidence it could be harder and more expensive to refinance.
Big falls in stocks can feed through to the economy by making people feel poorer—and so spend less.
Finally, sentiment is vital. Most workers wouldn’t be affected directly by a big fall in stocks, because relatively few people own shares, even after last year’s boom in trading. But with stock prices closely followed in the media and by companies, a crash could create a mood of national gloom, with knock-on effects on corporate and consumer confidence that in turn hit spending.
I’m not too worried about these risks because I think there’s only a relatively small set of bubble stocks, and they can burst without serious damage. If I’m wrong and it turns out there’s a bigger bubble—after all, almost everything is very expensive compared with the past—then I would be more worried. But the economy would probably still be fine, and surely better off than when banks were financing a housing bubble.
Man Who Spent $446 Million On Pizza Has Advice For Tesla Fans
Hi, Olga here. Laszlo Hanyecz said he wouldn’t spend his Bitcoins on a Tesla. Hanyecz knows what he’s talking about: In 2010, he paid 10,000 Bitcoins, worth about $446 million at current prices, for two pizzas.
It was the first known commercial transaction of cryptocurrency. Back then, Bitcoin’s price stood at less than a penny. It hit an all-time high of about $47,000 on Tuesday, the day after Tesla Inc. said it bought $1.5 billion in Bitcoin and will accept the digital currency for the purchase of cars.
“Personally, I am not too interested in Tesla,” Hanyecz wrote in an email. “If you give it five years, I think the Bitcoin you’d spend will be more valuable than the car.”
What separates Bitcoin from a typical fiat currency, of course, is volatility. A dollar won’t be worth substantially more or less tomorrow. During the Bitcoin frenzy of 2017, some people bought Lamborghinis with their winnings. Other Bitcoin holders watched as the price fell by more than 80% the next year, before quadrupling last year.
People tend to treat Bitcoin as a risky investment, rather than as a checking account. When Bitcoin rallied, especially in the latter part of last year, average monthly transactions of various cryptocurrencies processed by BitPay Inc. fell 27%. Merchant-related transactions accounted for 0.3% of cryptocurrency spending in 2020, with the remainder dominated by an explosion of trading, according to researcher Chainalysis.
Transacting in Bitcoin is a risk for companies, too. Musk has been more willing to gamble than most, dating back to his role as co-founder of the pioneering online payments company PayPal and more recently, to his fascination with the joke currency Dogecoin.
Tesla’s bet on Bitcoin follows a few others, including MicroStrategy Inc. and Square Inc., that invested as a hedge against inflation. The moves boosted their stock prices when Bitcoin rose, but it can easily go the other way. For investors and corporate finance departments, it also makes earnings forecasting a lot more difficult.
For most people, buying a car is a big financial decision, and it’s unwise to introduce another potentially life-changing factor on top of that, said Hanyecz. While he said he doesn’t regret buying those pizzas, Hanyecz said people are better off using a credit card.
Tesla Sinks Below The Price At Which It Entered S&P 500 Index
Tesla Inc. shares wiped out their year-to-date gains Tuesday and briefly traded below the level where they were when the electric-carmaker entered the S&P 500 Index in December.
The stock dropped as much as 13% to $619 in New York, its biggest intraday decline since Sept. 8, before paring much of the loss to close down 2.2%. The stock was down 31% from its Jan. 25 record intraday high at its lowest point on Tuesday.
Tesla’s early-week decline amid a wider market selloff was fueled in part by Chief Executive Officer Elon Musk’s comments over the weekend that the prices of Bitcoin and smaller rival Ether “do seem high.”
“Tesla is an EV play entering the golden age of EVs and there is a lingering worry that the Bitcoin sideshow could overshadow the overall EV growth story playing out for Tesla in 2021 and beyond,” Wedbush analyst Daniel Ives wrote in a note to clients.
The concerns over the value of the cryptocurrency helped erase some of Bitcoin’s gains, which had rocketed to new highs after Tesla announced two weeks ago it added $1.5 billion in the cryptocurrency to its balance sheet. Bitcoin fell as much as 18% to $45,000 Tuesday.
However, there are other recent factors that may also be taking the shine off Tesla’s valuation. The company’s decision to stop taking orders for the lowest-priced version of its Model Y electric SUV, as reported by Electrek earlier this week, may also be dampening investor enthusiasm, Ives said.
“Tesla stopping sales of its lowest price Model Y coupled by continued price cuts have led to Street demand concerns as the bears come out of hibernation mode,” Ives added.
In addition, a continuous stream of EV development news from traditional automakers such as General Motors Co. and Ford Motor Co., as they prepare to go all in on the electrification race, has emphasized that Tesla isn’t the only way to get exposure to the upcoming transformation in the auto sector.
Smaller electric-vehicle stocks, which typically take their daily trading cues from Tesla, also dropped sharply Tuesday.
Elon Musk Says Tesla Now Accepts Bitcoin From US Customers
Tesla initially hinted at accepting Bitcoin for payments in an SEC filing earlier this year.
Elon Musk has announced that Tesla cars can now be purchased using Bitcoin (BTC). The electric car company’s CEO and “Technoking” said the firm would operate Bitcoin nodes directly, and would hold on to the Bitcoin it accumulates without converting it to fiat.
You can now buy a Tesla with Bitcoin
— Elon Musk (@elonmusk) March 24, 2021
Tesla first signaled its intention to start accepting Bitcoin for products in early February, following its purchase of $1.5 billion worth of the digital asset, an SEC filing showed. The option to buy a Tesla using BTC will only be extended to U.S-based customers for the time being.
Elon Musk’s insistence that the Bitcoin earned through the sale of the firm’s vehicles won’t be converted to fiat suggests it is not just being utilized as a transactional medium, but also an investment tool.
Tesla is using only internal & open source software & operates Bitcoin nodes directly.
Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency.
— Elon Musk (@elonmusk) March 24, 2021
By running its own dedicated Bitcoin nodes, Tesla will join a global network of peer-to-peer operators who host and synchronize the Bitcoin blockchain.
Visitors to Tesla’s website from a U.S.-based IP address will now see a new Bitcoin payment widget added to the site’s checkout options. The impact of Tesla’s acceptance of Bitcoin may have been felt on the cryptocurrency market early on Wednesday. Coinciding with the breaking of the news, the dollar value of Bitcoin jumped 2.9% from $54,056 to $55,630.
Tesla’s Bitcoin terms and conditions do state that Bitcoin is the only digital asset that Tesla accepts as payment for its products at this time. “You may not make purchases with us using any other digital asset, including Bitcoin fork products, such as Bitcoin Cash and Bitcoin SV. Our Bitcoin digital wallet is not configured to detect or receive digital assets other than Bitcoin,” state the terms.
Tesla Confirms Bitcoin Hodl Strategy As New Report Says BTC Should ‘Comfortably’ Hit $100K
Analysts at Decentrader point to encouraging hodler behavior that suggests that BTC/USD is far from its cycle top at $56,000.
Bitcoin (BTC) shouldn’t have a problem reaching $100,000 during the current cycle thanks to impressive behavior from hodlers.
In their latest newsletter shared with Cointelegraph Markets, analysts from trading suite Decentrader sought to allay fears that Bitcoin’s bull run is running out of steam.
HODL Waves Stay Bullish
Backing their optimism, they said, is data showing that more and more investors are hodling BTC for the long term — one year or more.
Taken from the popular “HODL Wave” indicator, this suggests that there is less desire to sell Bitcoin at short notice at a certain price, providing a solid foundation for further growth.
“The 1Yr+ HODL Wave suggests that Bitcoin should comfortably reach the $100,000 level during this cycle,” Decentrader summarized.
“The greater the amount of Bitcoin being held for a year or longer, the less liquid the supply or potential selling pressure there will be. Typically, if 50% or more of Bitcoin is being HODLed the bull market continues, below this is potentially cause for concern.”
HODL Waves tracks the proportion of the existing Bitcoin according to when it was last used in a transaction. Previously, Cointelegraph noted that those who bought BTC during the 2017 bull run had largely held onto their position despite realizing significant gains.
Locking Down The BTC Supply
As Cointelegraph reported on Monday, roughly 36% of the circulating Bitcoin supply is currently made up of “younger” coins which have moved at some point in the past six months.
Exchange data further reinforces the pro-hodl mindset among investors, as overall reserves continue to plummet in March despite BTC/USD making a new all-time high.
Even miners appear to be increasingly interested in keeping their BTC rewards, as evidenced by figures from on-chain analytics service Glassnode showing net miner positions turning positive this month. Michael Saylor, CEO of MicroStrategy, described their behavior as “onlyrational.”
“Strong holders are increasing their positions. Another sharp increase of #Bitcoin in the illiquid wallets,” quant analyst Lex Moskovski commented on another Glassnode chart.
Elon Musk, CEO and “Technoking” of Tesla, became the most recent high-profile hodler when he announced on Wednesday that the carmaker would offer products for BTC and not convert the revenue to fiat.
According to Bitcointreasuries.org, Tesla currently holds an estimated 48,000 BTC, a number that should grow as people exchange their Bitcoin for the company’s electric vehicles.
Bitcoin Rises Despite Dollar Strength As Elon Musk Adds BTC Payment Option
Tesla accepting bitcoin payments and running its own nodes is “massively bullish,” according to one analyst.
Bitcoin (BTC) jumped early Wednesday after the Tesla CEO Elon Musk said the electric vehicle maker is now accepting the cryptocurrency as a payment option. Musk’s Twitter announcement overshadowed the dollar’s strength, helping the cryptocurrency stay bid.
“You can now buy a Tesla with [b]itcoin,” Musk tweeted at 7:02 UTC (3:02 a.m. ET), adding the cryptocurrency received in payments won’t be converted to cash, meaning the company is adding to its already sizable stash of bitcoin.
Bitcoin rose from $54,700 to above $56,000 following Musk’s announcement, having defended support at $53,000 on Tuesday. Tesla announced in early February it had bought $1.5 billion worth of bitcoin, validating the cryptocurrency’s appeal as a reserve asset.
While the electric vehicle maker’s acceptance of crypto as payment will undoubtedly grab the headlines, it’s something Musk had said he likely would do when he announced Tesla’s bitcoin investment earlier this year. What’s at least as significant is his statement that Tesla operates its own bitcoin nodes as it shows the company – and its CEO – are committing even further to the cryptocurrency.
“Tesla accepting bitcoin payments and running its own Bitcoin nodes is massively bullish. Others will follow,” trader and analyst Alex Kruger tweeted.
Musk’s announcement comes two days after Federal Reserve’s Chairman Jerome Powell called bitcoin a volatile speculative asset.
At press time, bitcoin is changing hands near $55,300, representing a 3.6% gain on the day. The cryptocurrency is trading higher despite the strength of the U.S. dollar in the foreign exchange markets. The dollar index (DXY), which tracks the greenback’s value against majors, has risen to 92.52 – the highest level since Nov. 24.
The two assets have mainly moved in opposite directions since March 2020. However, the inverse correlation has weakened somewhat in recent days, with bitcoin trading steady above $50,000 amid the DXY’s rise to four-month highs.
The cryptocurrency is now fast approaching a descending trendline hurdle, as seen on the chart below.
A breakout above the trendline hurdle would open the doors for a re-test of record highs above $61,000. On the downside, $53,000 is key support.
Tesla Just Helped Patch A Bug In This Open Source Bitcoin Payment Processor
The carmaker’s assistance to BTCPay Server is another sign of its serious commitment to bitcoin, beyond holding it in its treasury and accepting it as payment.
Tesla just contributed to Bitcoin open source software.
The car maker disclosed a bug in the open-source Bitcoin payment processor and wallet BTCPay Server, and it also helped the project’s team patch the flaw.
The electric vehicle and renewables company informed BTCPay’s team of the bug after reviewing the project’s GitHub last week. It affects users who boot BTCPay from “Docker Deployment, have a configured email server and enabled registration for users in Server Settings > Policies,” according to a post on BTCPay’s GitHub that included a software patch.
The team wrote in the post that more information on the bug would be disclosed in BTCPay’s next major release.
“We want to thank @teslamotors for filing a responsible disclosure, helping us with remediation, and handling the situation professionally. We also want to thank Qaiser Abbas, an independent web-security researcher, for an additional responsible vulnerability disclosure that was handled in this release,” BTCPay’s team wrote in the software release fixing the bug.
BTCPay Server was launched in 2017 by Bitcoin developer Nicola Dorier in response to popular Bitcoin payment processor BitPay’s controversial statements regarding the 2016 SegWit soft fork. Since launching, BTCPay has been integrated as a donations portal for charitable efforts around the world, including Nigeria and Venezuela.
The wallet is also used by many Bitcoin industry merchants and companies as a point of sale for online stores.
Since Elon Musk announced Tesla’s billion-dollar bitcoin holdings, the company has also started accepting bitcoin in return for its services. Musk has publicly stated the company plans to hold all bitcoin they receive and not convert it to cash.
Tesla Books Huge Profit From Bitcoin Sale In Q1
In February, the electric vehicle maker announced it had purchased $1.5 billion worth of Bitcoin.
Tesla Motors sold a portion of its Bitcoin (BTC) holdings in the first quarter of 2021, generating net proceeds of $272 million, the electric vehicle maker reported Monday.
In a 30-page slide deck accompanying its quarterly financial results, Tesla noted a $101 million “positive impact” as a result of its Bitcoin sale:
“Year over year, positive impacts from volume growth, regulatory credit revenue growth, gross margin improvement driven by further product cost reductions and sale of Bitcoin ($101M positive impact, net of related impairments, in Restructuring & Other line), were mainly offset by a lower ASP, increased SBC, additional supply chain costs, R&D investments and other items. Model S and Model X changeover costs negatively impacted both gross profit as well as R&D expenses.”
In its quarterly cash flow statement, the company said “proceeds from sales of digital assets” were valued at $272 million.
The electric vehicle maker made headlines in February after revealing a strategic acquisition of $1.5 billion worth of BTC. At the time, that amounted to 7.7% of Tesla’s gross cash position. The company also announced that it will accept Bitcoin as payment for its cars without necessarily converting it into fiat currency.
Beyond its cryptocurrency activity, Tesla posted net income of $438 million during the quarter, marking a new all-time high. Per-share earnings were 93 cents on revenue of $10.39 billion. The Elon Musk-led firm also said that it expects vehicle delivery growth to exceed 50% this year, which implies minimum deliveries of roughly 750,000 vehicles for 2021.
Musk Says Tesla Sold Bitcoin (10%) To Prove Liquidity As Cash Alternative
Elon Musk said Tesla Inc. sold 10% of its Bitcoin holdings to demonstrate the token’s liquidity, while adding that he’s retained his personal investment in the cryptocurrency.
Tesla’s earnings report showed the firm — which bought more than $1 billion of the tokens earlier this year — generated $101 million in income from the sale. Musk said on Twitter that Tesla in essence was trying “to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.”
The world’s largest cryptocurrency was up 2.3% to $54,503 as of 10:18 a.m. in London on Tuesday. It’s tumbled from a peak of almost $64,870 in mid-April but is still up sevenfold in the past year.
The electric-vehicle maker put cryptocurrencies onto the agenda of corporate treasurers worldwide with its investment in Bitcoin. While many continue to view the token as just too risky to be compared with cash, Tesla’s Chief Financial Officer Zachary Kirkhorn said on an earnings call that the company believes in Bitcoin’s long-term value.
No, you do not. I have not sold any of my Bitcoin. Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.
— Elon Musk (@elonmusk)
April 26, 2021
For a number of strategists, Bitcoin and other tokens are purely speculative investments rather than legitimate alternatives to cash. For instance, BCA Research Inc. argues that Bitcoin fails as a store of value or unit of account owing to its volatility, even though these are basic functions of money.
However, Musk has been a high-profile supporter of cryptocurrencies for some time and late last month announced that Tesla would begin accepting payment for its vehicles in Bitcoin.
Tesla fell as much as 3.1% in late trading after its results were announced Monday despite a record profit in the first quarter.
‘I Have Not Sold Any Of My Bitcoin’: Elon Musk
Tesla may have realized some of its Bitcoin profits, but CEO Elon Musk continues to hodl.
Billionaire entrepreneur Elon Musk has taken to Twitter to assure the crypto community that he has not sold any of his personal BTC stash despite his company Tesla realizing profits from its recent Bitcoin (BTC) buys.
Musk’s comments came in response to accusations from comedian Dave Portnoy that the Tesla CEO had profited from a Bitcoin pump-and-dump engineered through his public statements supporting the cryptocurrency.
Rejecting Portnoy’s assertion, Musk stated that “Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet,” adding:
“I have not sold any of my Bitcoin.”
No, you do not. I have not sold any of my Bitcoin. Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.
— Elon Musk (@elonmusk) April 26, 2021
As reported by Cointelegraph, Tesla sold a portion of its Bitcoin holdings in the first quarter of 2021, generating net proceeds of $272 million.
In February this year, the company catalyzed the crypto market bull run after disclosing a strategic acquisition of $1.5 billion worth of Bitcoin — worth 7.7% of its gross cash position at the time.
During the same month, Tesla also announced it would begin accepting BTC payments for its cars, emphasizing that it will store the funds in Bitcoin rather than convert them into cash.
Musk has typically shied away from disclosing how much Bitcoin he holds personally, but his latest tweet suggests he is reluctant to sell it.
At the time of writing, BTC has gained 3% over the past 24 hours to trade at $53,600, according to CoinGecko.
Bitcoin Price Dip Below $40K Costs Tesla Nearly 100% Of Its BTC Profits
Elon Musk may have egg on his face after his comments effectively erase all the money his company made from buying Bitcoin.
Bitcoin (BTC) fell below $40,000 on Wednesday as bearish sentiment continued to dictate price direction resulting in the cryptocurrency market losing $350 billion in value.
Analysts Calm As BTC/USD Hits 15-Week Lows
Data from Cointelegraph Markets Pro and TradingView tracked BTC/USD as it put in lows of $38,500 before bouncing higher.
Coming after a week of successive drops, Wednesday’s dip put Bitcoin at its lowest level since early February and 40% below its all-time highs.
“Bitcoin putting in new lows, probably buy more soon,” popular trader Scott Melker told Twitter followers in a post that characterized the conversely calm mood among market veterans.
As Cointelegraph reported, those closer to the data were anything but bearish throughout the week, and even a sub-$40,000 BTC price failed to dampen their spirits.
“16,835 Bitcoin withdrawn from exchanges in last 10 minutes,” analyst Lex Moskovski noted at the time of writing.
“Someone’s buying fear.”
Tesla Blows Its Bitcoin Fortune
Elsewhere, the spotlight remained on Tesla CEO Elon Musk. After taking the blame for the volatility in recent days, Musk was widely held to have cost himself and his company more than most others with his remarks.
With its return below $40,000, Bitcoin thus traded nearly at the same price on Wednesday as that at which Tesla bought $1.5 billion.
Its announcement came on Feb. 8, a matter of weeks after a likely transaction took place. Nonetheless, its profits from its BTC, which at one point totaled more than its entire history making electric cars, evaporated.
“We are back at Feb 8 open price of $39K, when Tesla made the bitcoin announcement,” stock-to-flow model creator PlanB summarized.
According to monitoring resource Bitcoin Treasuries, Tesla’s stash was worth just over $1.72 billion at the time of writing.
PlanB had been one of the most vocal critics of Musk, being joined by figures such as Saifedean Ammous, author of The Bitcoin Standard.
For his part, Musk had confirmed that Tesla had yet to sell any of its allocation.
Musk Tweets He Supports Crypto In Battle Against Fiat Currencies
Elon Musk is again tweeting about technology and cryptocurrencies, and this time he’s clear on where his support is at.
In a thread started by Musk himself comparing magic to technology where someone asked what he thought about people “who are angry at you because of crypto,” the Tesla Inc. CEO tweeted that the “true battle is between fiat & crypto. On balance, I support the latter.”
Bitcoin rose after Musk’s post, and was trading at around $38,700 as of 9:32 a.m. New York time.
The true battle is between fiat & crypto. On balance, I support the latter.
— Elon Musk (@elonmusk) May 22, 2021
Musk has made similar comments before, including in December when he tweeted that “Bitcoin is almost as bs as fiat money.” In February, he elaborated to say that “when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.”
Former U.S. Treasury Secretary Lawrence H. Summers recently compared crypto to gold as a safe haven asset, but said he doesn’t expect consumers to turn to Bitcoin for most of their payments, even though it could become an important part of e-commerce.
Earlier in the week, Musk had tweeted that he won’t be selling any Dogecoin and he also posted a cryptic image of a dollar bill with a Shiba Inu dog replacing the face of a former U.S. president.
Bitcoin ended the week in volatile territory after a new warning from Chinese officials over cracking down on cryptocurrencies. The earlier selloff on Friday hit Bitcoin believers still fuming after Musk did an about-face and criticized the token for its energy usage.
Bitcoin On The Balance Sheet Is an Accounting Headache for Tesla, Others
Tesla and other companies that hold the notoriously volatile cryptocurrency often must record impairment charges when its value falls.
Elon Musk reignited his curious Twitter relationship with bitcoin on Sunday, giving the cryptocurrency a small boost.
More pertinent to Tesla Inc. shareholders, however, is the hit to the company’s bottom line this quarter from Mr. Musk’s sometimes hot, sometimes cool attitude toward bitcoin.
Mr. Musk is widely blamed by investors for starting the digital currency’s most punishing slide of the year after announcing on Twitter that Tesla would stop accepting bitcoin as payment for its electric vehicles. He added fuel to the fire earlier this month, tweeting breakup memes with “#bitcoin” and a broken-heart emoji. Bitcoin has slumped 30% since the original May 12 tweet.
On Sunday, Mr. Musk said Tesla would resume bitcoin transactions when miners increase use of renewable energy sources. The price jumped over 6% from its Friday 5 p.m. ET level to trade at about $39,300 early Monday. He also said that Tesla had sold only about 10% of its bitcoin holdings earlier this year to confirm that the cryptocurrency “could be liquidated easily without moving market.”
Tesla had about $1.3 billion in bitcoin parked in its treasury at the end of the first quarter and announced the bitcoin purchase in February to “diversify and maximize returns on our cash.”
Software developer MicroStrategy Inc. and a handful of other companies, including payment app provider Square Inc., have made similar investments. Some have touted bitcoin as a store of value, or a more modern version of gold.
But companies holding bitcoin in their treasuries face an accounting risk: Because bitcoin and other digital assets are considered “indefinite-lived intangible assets,” rather than currencies, any decrease in their value below what the company paid for them—even a temporary one—can force a company to write down the value and take an impairment charge.
Such assets must be tested for impairment at least annually, or if the price falls below the company’s carrying value.
The volatile nature of bitcoin makes quarterly revaluations routine. Once the company takes the charge, that resets the fair value of the asset. Conversely, if the price has gone up, the company can’t record a gain; it can do that only when it sells the asset.
Tesla, which didn’t respond to a request for comment, is projected to post a profit of 96 cents a share in the second quarter, according to analysts polled by FactSet.
Bitcoin’s volatility, combined with this accounting treatment, makes it hard for corporate officers to manage crypto holdings as cash, which makes it less useful as a reserve asset, said Jennifer Stevens, an accounting professor at Ohio University.
“The accounting is a little bit incongruous with the underlying purpose,” she said.
Few other companies have been eager to jump into bitcoin. A February survey from research firm Gartner found only 5% of chief financial officers questioned planned to hold bitcoin as a corporate asset this year. Of the finance chiefs surveyed, 84% said they never planned to hold it.
Tesla initially disclosed a $1.5 billion investment in bitcoin on Feb. 8 but didn’t specify how many bitcoins it held or the average price it paid. The change to its investment policy, however, was made in January, and the price of bitcoin averaged about $35,400 between Jan. 1 and Feb. 8, according to data from CoinDesk. That means Tesla likely held around 37,000 bitcoins after slightly trimming its position in the first quarter.
As of Friday afternoon, bitcoin hovered just above $37,000, and it dropped as low as $30,202 last month.
It is likely Tesla will take an impairment charge on its bitcoin holdings this quarter, said Wedbush Securities analyst Dan Ives.
He added that the company was likely buying across January and at least some of those holdings are now being held at a loss.
“If bitcoin is below $30,000, or in the low $30,000s [at the end of the second quarter], the impairment would have to be large,” he said. It could end up being similar in size to the $101 million gain Tesla posted in the first quarter on the sale of some of its holdings, he said.
“It went from a tailwind to a real headwind,” he said.
Tesla’s results in recent periods have been propped up by one-time gains. In addition to the gain on the bitcoin sale in the first quarter, the company recorded a $518 million gain on the sale of regulatory credits to other auto makers to help them meet emissions mandates. That pushed the company into the black for the period—Tesla posted net income of $438 million, or 93 cents a share.
Tesla wouldn’t be the first company to take a big charge on its bitcoin holdings.
MicroStrategy, which sells business software and holds about 92,000 bitcoins worth more than $3 billion, already has posted quarterly losses because of this accounting treatment, both in last year’s third quarter and this year’s first.
Last week, it said it expects to take a charge of at least $285 million on its bitcoin investment in the current period, which will push it to another quarterly loss.
For now, MicroStrategy is just accepting the accounting practice, Chief Executive Michael Saylor said in an interview. He said he sees bitcoin as a better value than the U.S. dollar and has made buying and holding it as much of a company priority as software sales.
“This looks risky to a person who doesn’t understand bitcoin,” he said, “but it is by far the least risky way to grow the company.”
The company’s bitcoin strategy has made Mr. Saylor a hero in cryptocurrency circles but has also made MicroStrategy’s stock as volatile as bitcoin. The shares were trading at $135 last August when the company announced its new bitcoin strategy. They skyrocketed to a record $1,273 by September but have been falling since then, closing Friday at $516.44.
It is harder to determine how much Tesla’s stock price has been affected by its bitcoin strategy since it is a far smaller part of the company’s holdings, but the stock has been falling since the February announcement. It closed at $609.89 Friday, down 29% from Feb. 8.
How China Rivals Elon Musk In Rattling Crypto Markets
Not much moves cryptocurrency markets like Elon Musk tweets — except, perhaps, the idea of another crackdown in China, the world’s second-largest economy.
From a trading ban on domestic exchanges to squeezes on power-consuming digital currency miners, Chinese regulators have tried to tamp down risks related to the stratospheric rise of Bitcoin and its peers for years.
Yet a recent flurry of official reminders has traders nervous about more possibly to come as President Xi Jinping seeks to reduce financial risk in the economy and meet the country’s ambitious goals for combating climate change.
1. What Has China Done?
In 2017 China told exchanges to stop trading in cryptocurrencies and banned initial coin offerings or ICOs, which are the equivalent of initial public offerings for new virtual currencies.
The government also bans financial institutions and payment service providers from getting involved in crypto trades even tangentially — like opening a bank account for those who engage in them. It also has moved to discourage Bitcoin mining — the energy-intensive computing process involved in creating the digital currency and verifying transactions — which has long been concentrated in China.
2. Why The New Attention?
It started in May when the State Council — China’s cabinet — called for a renewed crackdown on Bitcoin mining and trading activities. That was the first time top officials had singled out crypto mining at the national level since dropping it in 2019 from a proposed list of dirty industries to be eliminated.
Clampdowns are said to be underway in epicenters of crypto mining such as Sichuan province, with abundant hydropower, and the coal-rich regions of Xinjiang and Inner Mongolia. China’s central bank summoned officials from major state-owned banks and payment-service provider Alipay to a meeting in June to reiterate a ban on crypto-related services, a sign that they are watching closely.
3. Why Is China Cracking Down?
There’s been no explicit explanation, but cleansing risk from financial markets has been a government mantra for years, as evidenced lately in the crackdown on fintech giants including Jack Ma’s Ant Group Co. and the central bank’s work to develop a digital yuan.
Digital currencies also provide a way to move money out of China, potentially adding to outflows that officials have aggressively set about stemming. As for mining, local governments have grown wary of the industry’s huge energy consumption — more annually than the entire country of the Netherlands — at a time Xi’s government has pledged to achieve carbon neutrality by 2060.
More immediately, the trigger at the State Council meeting was said to be in part concern that crypto mining has stoked a surge in illicit coal extraction, following a jump in deadly accidents this year. Some crypto miners generate their own power off the grid.
4. Wait, Isn’t Crypto Huge In China?
China dominates the world in crypto mining in a couple of ways: Companies like Bitmain, MicroBT, and U.S.-listed Canaan Inc. are the biggest manufacturers of crypto-mining machines; others like F2Pool and Poolin run online services where users combine their computing power and split rewards for a better chance of unearthing new coins.
China is also home to most of the planet’s miners — humming from warehouses and data centers that tap cheap coal or hydro power in regions like Xinjiang, Inner Mongolia, Sichuan and Yunnan. As of April 2020, China provided 65% of the world’s computing power for Bitcoin mining, versus 7% for the runner-up, the U.S., according to an estimate by the University of Cambridge.
As for trading, Bitcoin and its peers can still be traded, but only directly between two parties in over-the-counter markets run by the likes of Binance and Huobi, a slower process.
5. What’s The Impact Been?
It’s hard to judge. China’s latest crackdown is mainly about the physical mining facilities, where no particular players have a lead. There are potentially tens of thousands of operations scattered around the country, which makes regulatory scrutiny difficult. Still, the moves have been reshaping the industry and driving up costs.
The Bitcoin network’s computing power has plunged since the State Council meeting, suggesting at least a short-term disruption of miner operations. Some Chinese miners have started to move operations, selling Bitcoins or their machines, Mustafa Yilham, a vice president of Chinese crypto wallet and miner Bixin, tweeted.
But the exodus of Chinese crypto players has been underway since 2017. Bitmain established mining operations in the U.S. and Canada, and a slew of local exchange and wallet service providers have set up shops in places like Hong Kong and Singapore. The latest warning shots from regulators could accelerate that process.
On May 26, Beijing-based BitDeer, a mining startup founded by influential crypto entrepreneur Jihan Wu, said it has blocked all internet addresses from China to make sure the company no longer serves Chinese citizens. Huobi stopped enrolling new Chinese users for trading riskier crypto-related products on its platform, and the company also suspended machinery sales and hosting businesses in the country. Smaller crypto futures exchanges like XMEX announced complete shutdowns.
6. What About Cryptocurrency Prices?
China’s initial crackdown triggered heavy losses in Bitcoin’s price in 2018, but the largest cryptocurrency has gone through many ups and downs since then. It reached a high of $64,870 in April, but was trading at half that two months later. Tweets from Musk, chief executive of electric vehicle maker Tesla Inc., contributed to the whipsaw ride, after he criticized the token for its energy consumption.
Tesla Correlation To Big Tech Breaks Down. Blame Bitcoin
Tesla Inc.’s shares have become less correlated with those of large U.S. technology companies ahead of the electric-vehicle maker’s earnings report and Bitcoin may be the reason why.
The 20-day correlation between Tesla’s stock price and the Nasdaq 100 index has fallen from 0.83 on June 17 to 0.14 as of Wednesday. A decline can also be found in the relationship between the EV company’s shares and the NYSE FANG+ index, which includes the biggest tech firms such as Facebook Inc., Apple Inc., Amazon.com Inc. and Netflix Inc. Tesla reports earnings on July 26.
“Tesla is highly correlated to megacap tech” and “this relationship has really decoupled in the near term,” Amy Wu Silverman, derivatives strategist at RBC Capital Markets, said in emailed comments. “When I ask around, the feedback I get is that this is related to their Bitcoin exposure and how it will have to be accounted for when they report earnings.”
Tesla in February disclosed a $1.5 billion investment in Bitcoin after favorable comments about the largest cryptocurrency from Chief Executive Officer Elon Musk. The move sparked speculation that other companies would follow — though few have. Tesla has since sold a portion of the holdings, and Musk has emerged as a critic of Bitcoin for reasons including energy consumption.
Tesla has dropped almost 4% this month, while the Nasdaq 100 is up more than 2%. Bitcoin has dropped from a peak of almost $65,000 in mid-April to about $32,500 amid a broad retreat in investor appetite for speculative assets like cryptocurrencies.
Silverman noted that Tesla also has “extremely steep” skew, a measure of how expensive bearish options are relative to bullish ones.
“This is highly unusual for Tesla which spends a lot of the time with ‘inverted skews’ because both institutions and retail adore buying out-of-the-money call options in the name,” she said. Those looking for bearish trades might do well to use put spreads to take advantage of the high skew, Silverman added.
Tesla Finally Bows To Charging Competition
The company plans to open its proprietary network in advance of a parade of new EVs.
Mr. Musk will juice you up — yes, even you Nissan and Porsche people who have steered well clear of The Elon Show.
Tesla Inc.’s pledge to open its massive charging network to other car brands later this year, while largely expected, nevertheless marks a major inflection point in the electric vehicle economy and, should it come to pass, will surely goose the pedal on EV adoption.
To date, Tesla has kept its plugs behind a walled garden because, well, because it could. When it was getting started, there was no incentive for anyone else to build and operate chargers, so it made its own, understanding fully that the electricity was as important as the electric vehicle. Simply put: plugs sold cars. As long as EV dabblers like Chevrolet and Nissan didn’t have many of them, customers had all the more reason to buy a Tesla.
But with the coming parade of Tesla fighters came a surge in rival charging networks like Electrify America and EVgo. Tesla’s charging map is still arguably better than its rivals, but not by much.
In the U.S. and Canada there are 1,176 fast-charging Tesla stations, compared with 5,113 stations operated by others, according to the latest tally by the Department of Energy. However, there are 20% more Tesla plugs and they are scattered more widely around the country, as the company leverages them as business development machines, from the badlands of North Dakota to the forests of Maine.
The most likely places for Tesla to drop its charging wall are in Europe, where it faces much more robust rival networks and stands to gain subsidies for brand-agnostic plugs. In Europe, Tesla owns just 16% of the public fast chargers and, not surprisingly, many Tesla vehicles on the continent are equipped with the more generic CCS charging port, rather than the company’s proprietary dock.
Meanwhile, in his home market, Musk’s hand has been further forced by his rivals, as competing car companies cobble together partnerships — known as interoperability agreements – that allow their customers to plug in to almost any network.
Ford’s hodgepodge charge map, dubbed FordPass, comprises 16,000 stations, including those run by Electrify America and EVgo. Most of Montana and Wyoming is still a bridge too far for a Mustang Mach-E in the wild, but the rest of the country is fairly well wired.
In short, Tesla’s chargers are no longer as powerful at selling cars; Musk may as well use them to sell some electricity. No doubt, he’ll also use them to squeeze some hefty access fees out of FordPass and other electric vehicle startups like Stellantis and Volkswagen. If the service is good, the company eventually might lure some drivers away from their Chevrolet Bolt or Volkswagen ID4. “There’s certainly a marketing aspect to it,” says BloombergNEF analyst Ryan Fisher.
There’s no telling when, where, or even if Tesla will knock down the wall around its chargers. The latest pledge came from Musk’s Twitter feed, historically a somewhat unreliable source.
And if the company does welcome other brands, there will likely be some elaborate queueing system to give priority to the Tesla faithful. But the Supercharger network finally has viable competition, albeit a collective one, in the minds of car buyers and, apparently, in the mind of Elon Musk.
Wyoming may see a few more Mustangs in the wild after all. Giddy up.
Tesla Seeks Lower Taxes On Sale of Imported EVs In India
Tesla Inc. has sought lower taxes on import of electric vehicles in India, people with the knowledge of the matter said, as it looks to commence operations in Asia’s third-largest economy.
The California-based maker of electric vehicles has written to the transport and industry ministries for reducing import duty on electric cars to 40% from the current range of 60%-100% for vehicles depending on their import value, the people said, declining to be identified as the matter is not public.
Earlier, Reuters reported that Tesla has pitched to Indian ministries to reduce federal taxes on imports of fully assembled electric cars.
The high import levy will deter sales, the company said in the letter dated July 5 seen by Bloomberg News. Any reduction will boost the development of the Indian EV ecosystem, Tesla said.
Tesla is seeking to enter India, one of the world’s biggest emerging car markets, where electric vehicles account for less than 1% of new passenger vehicles and two-wheeler sales compared with 5% in China.
Even though the government has committed support in form of subsidies to promote EVs in the country, sparse charging infrastructure and high cost has meant low acceptance unlike China where Tesla set up its first factory outside of the U.S. and now dominates electric-car sales.
The company also wants the government to scrap the 10% social welfare surcharge on electric vehicles which was introduced in 2018. Tesla didn’t immediately respond to requests for comment. A transport ministry spokesman didn’t immediately respond to requests for comment.
Earlier this month, transport minister Nitin Gadkari had said Tesla would soon enter the Indian market and the government was already working on building electric charging stations along some highways.
The company has said the reduction in duty will help it make significant direct investments in sales, service, and charging infrastructure. The company plans to significantly increase procurement from India for its global operations and will evaluate broader investment in manufacturing and research and development following a successful launch, the company said in the letter.
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