On Monday, electric car maker Tesla announced that it invested $1.5 billion in bitcoin. This marked to be the biggest investment by a mainstream corporation into the most widely known cryptocurrency. But, this is not all. The company went a step ahead and announced that it plans to start accepting cryptocurrency as a payment method for its products. Thus, it had also noted this in a filing with the US Securities and Exchange Commission (SEC).
This had a wide-scale impact on the market and has future prospects. To begin with, the rate of bitcoin immediately shot up to an all-time high. It broke the $44,000-mark for the first time.
Bitcoin also intends to present several investment opportunities. However, the first advocates of bitcoin say that it was not intended to be used as an asset. It is aimed to be a medium of exchange, where the buying and selling can be smooth and efficient. But owing to its volatile nature, the price keeps fluctuating without any concrete reason.
But, why has Tesla invested in Bitcoin?
On updating its investment policy, the company in the SEC filing mentioned that it plans to be more flexible. It aims to further integrate and maximize returns on its idle cash. Thus as a means of achieving this, Tesla intends to invest in “alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds” along with other assets.
Indian Express reported that the company said “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.”
What does Tesla’s investment in bitcoin mean?
Tesla’s investment in Bitcoin is indeed a way forward. This proves to be a landmark for crypto traders and investors to consider the long-term incorporation of Bitcoin. Owing to the influence of Tesla CEO Elon Musk, his support for cryptocurrency has always impacted the market tremendously. Hence, the price of Bitcoin also went soaring up when he changed his Twitter bio to read “#bitcoin”.
Musk has been actively involved in influencing people to buy more cryptocurrencies through his activities on Twitter. CNBC reported “The moves raised immediate questions around CEO Elon Musk’s behavior on Twitter recent weeks, where he has been credited for increasing the prices of cryptocurrencies like bitcoin and dogecoin by posting positive messages that have encouraged more people to buy the digital currencies”
Several individuals have reacted to this humongous move.
Speaking to Reuters, Thomas Hayes, managing member at Great Hill Capital LLC in New York talked about the influence of Elon Musk. He said “If any lesser mortals had made the decision to put part of their balance sheet in Bitcoin, I don't think it would have been taken seriously. But when the richest man in the world does it, everyone has to take a second look.”
Rahul Pagidipati, CEO of ZebPay, told LiveMint, “This is a surprise that is also not a surprise at all. Elon Musk has been talking about bitcoin for a long time. The number of users on ZebPay did more than double right after the news. It's a sign to other companies that bitcoin is a solid reserve asset for any balance sheet. We hope central banks will join in and that this news helps nudge the government to buy, not ban bitcoin and let every Indian do the same. Now if tomorrow Tesla also buys a billion dollars of dogecoin, that will be a surprise."
Will this move motivate other corporations to invest in bitcoin? Will the fluidity of using Bitcoin as a payment options increase?
While in recent news, Tesla made a mark of being the biggest investor in BItcoin, it is important to note that there are several other companies that hold larger quantities of Bitcoin. Tesla, in the record, holds 43,053 bitcoins. However, Virginia, the US-based business intelligence and mobile software company MicroStrategy account for 71,079 bitcoins in its holdings. The US-based financial services tech firm Square also holds 4,709 bitcoins.
To talk about the companies that already utilize cryptocurrency as a payment option, AT&T was the first big US company to employ this. Apart from this telecommunication giant, firms like Microsoft and companies like Pizza Hut, and Subway accept bitcoin as a payment method in a few of their outlets.
On a realistic note, Tesla does mention the volatile state of Bitcoin. The lack of its physical form and its dependence on technology for creation, maintenance, and exchange proves to be a hindrance. Furthermore, there is no clarity on how security laws and regulations by nations will tend to change and adapt to these assets. Hence, with the existence of such drawbacks, investors are always cautious about investing in Bitcoin, or any other cryptocurrency for that matter.