Tesla’s $1.5 billion Bitcoin buy could forever change corporate finance

Corporate uptake hits inflection point as Tesla’s Elon Musk buys Bitcoin

In a move that has electrified the crypto market, Tesla has added $1.5 billion worth of Bitcoin to its balance sheet, and expects to accept the cryptoasset as payment in the near future.

The news is not only another milestone for Bitcoin, which soared 20% on the headlines, but is likely to be a tipping point in the transformation of corporate balance sheets. Tesla’s example could trigger waves of adoption as more CEOs and treasurers are encouraged to add Bitcoin to their own reserves.

Cryptocurrencies can fluctuate widely in price, and are therefore not appropriate for all investors. Cryptoasset investing is unregulated in most EU countries and the UK. No consumer protection. Your capital is at risk.

One small step for Bitcoin

Speculation over Tesla’s potential adoption of Bitcoin has been widespread in the weeks prior to Elon Musk’s Bitcoin purchase. Musk added Bitcoin to his Twitter bio, and later called the cryptoasset an unquestionably ‘”good thing” that is “on the verge of getting broad acceptance.”

Even so, the market reacted with exuberance when the headlines hit. Bitcoin rocketed 12% in about 20 minutes, and later reached a new all-time high — making the market cap of the cryptoasset larger than Tesla itself.

Yet while the short-term impact was sensational, the long-term effects are likely to be even more significant.

Until now, most other firms adding Bitcoin to their reserves have only been dipping their toes. Square holds 0.2% of their balance sheet in Bitcoin, and mining company Riot blockchain holds 2.4%. Tesla on the other hand, has waded right into the market with a much larger allocation.

Tesla’s $1.5B in BTC is approx. 7.7% of balance sheet allocation

According to the most recent 10K filing, Tesla’s balance sheet totals around $19.4 billion gross, which means the $1.5 billion in Bitcoin represents an allocation of around 7.7%.
The thesis behind Tesla’s Bitcoin allocation reflects the same ideas espoused by pioneering investors like Paul Tudor Jones. Tesla said in a filing that the decision was part of its broad investment policy as a company, and was aimed at “diversifying and maximizing its returns on cash not reserved for operations.”

Cryptocurrencies can fluctuate widely in price, and are therefore not appropriate for all investors. Cryptoasset investing is unregulated in most EU countries and the UK. No consumer protection. Your capital is at risk.

One giant leap for payments and balance sheets

As one of the largest companies in the world, Tesla’s endorsement of Bitcoin legitimizes the cryptoasset to corporate treasurers everywhere.

Adding Bitcoin to a company’s balance sheet is a way to preserve purchasing power in a world of record global debt

This could spark a race for companies to add Bitcoin to their balance sheet as a way of preserving purchasing power in a world of record global debt, low interest rates, and massive monetary stimulus. According to analysts at RBC Capital Markets, even Apple could be next, if not the 1,400 corporate executives who attended Microstrategy’s Bitcoin conference in the first week of February.

Better yet for Bitcoin, some of these companies are likely to follow Tesla by accepting payments in the cryptoasset. This would be supported by recent efforts by PayPal and Visa to integrate banking infrastructure with digital assets, making it easier for these payment initiatives to gain traction, and further increasing adoption and demand.

Moreover, PayPal or Visa are not alone. Not only did Canadian insurance company Mogo recently purchase $1.5M Bitcoin, they also added a Bitcoin trading service to their loan and mortgage offering. And following Microstrategy’s historic $425 million investment in Bitcoin, Michael Saylor also published a playbook especially to advise corporates how they should invest in Bitcoin.

It is precisely this widespread participation that eToro’s report — “Institutional Cryptoasset Trading: Looking for the Missing Bits” — identifies as critical to the next phase of institutional adoption that will lead to continued upswing in the prices of cryptoassets:

“Only by widening the playing field and facilitating more participation will crypto reach and maintain a market cap of $2 trillion and beyond.”

Tomer Niv, eToro Crypto Business Development Manager

In other words, the recent collective corporate adoption is unlikely to stop any time soon. More significantly, it adds real weight to the forecasts of such investors as Anthony Pompliano, who believes that the price of Bitcoin will reach $400,000, and the Winklevoss brothers, who predict $500,000.

Cryptocurrencies can fluctuate widely in price, and are therefore not appropriate for all investors. Cryptoasset investing is unregulated in most EU countries and the UK. No consumer protection. Your capital is at risk.

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