Tesla bought $1.5 billion of cryptocurrency bitcoin in January and, as the first automaker, Tesla plans to accept payments in bitcoin, “initially on a limited basis.”
The news influenced the price of bitcoin which went up by 17% to a record-high $44,220 and continued to rise to the current $54,703.
There are several reasons which stand behind Tesla’s purchasing $1.5 billion of bitcoin. According to Tesla’s SEC filing, the company is planning to accept bitcoin as a form of payment in the near future, “initially on a limited basis”. Buying bitcoin increased Tesla’s liquidity in this cryptocurrency necessary for accepting it for future payments and diversified and maximized returns on cash that they don’t use in day-to-day business activity.
Following the updated Tesla investment policy, the company has plans to purchase more "reserve assets" such as digital currencies, gold exchange-traded funds, or gold bullion in the future. Musk’s tweet explains his take very explicitly: “When fiat currency has a negative real interest, only a fool wouldn’t look elsewhere.” By posting positive messages, Tesla CEO made investors buy more digital currencies such as bitcoin or dogecoin and eventually boost their prices by 20% and 50%, respectively.
The latest news shows the growing importance of digital cryptocurrencies. By making an investment in bitcoin and implementing bitcoin payments, Tesla Inc. confirms the legitimacy of digital currencies what can lead to wider global trust and greater popularity of digital assets.
On the flip side, as bitcoin is perceived as a very unstable asset with high price volatility, Tesla’s investment in bitcoin may be evaluated as an unnecessary risk. The company admits that the price of bitcoin may plunge what can negatively influence its condition: “If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed.”
However, such an adverse scenario is rather improbable because bitcoin has spiked by 62% so far this year. What’s more, if a bullish trend goes on, the price of bitcoin can reach a six-digit value. The enormous popularity of bitcoin and other cryptocurrencies shows the growing weakness of the U.S. dollar and other fiat currencies. A fiscal policy that is being introduced in so many countries decreases the value of state currencies what will result in growing inflation.
Consequently, it shouldn’t be a surprise that more and more people look for ways to protect their financial resources. One of the solutions to the global crisis and inflation can be digital cryptocurrencies whose popularity is growing, not only among private investors but also among global corporations such as Tesla.
Author: Justine Ilone Siporski is the founder, CEO and Editor-in-chief of BUSINESS POWERHOUSE, the founder and CEO of LANGUAGE EMPIRE, coach, trainer and columnist dedicated to the advancement of entrepreneurs and the C-suite (CMOs, CEOs, CFOs, CIOs). Her key mission is to support leaders in achieving their highest potential, making the right decisions, and expanding their horizons.
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