Tesla buys $1.5 billion in bitcoin

The news sent the value of the currency up by almost 19%
Atalayar_Elon Musk

REUTERS/MIKE BLAKE  -   Elon Musk, owner of SpaceX and CEO of Tesla

Tesla recently announced the purchase of $1.5 billion worth of bitcoins and that it should begin accepting payments via the virtual currency soon. The information was discovered through Tesla Motors' filing with the Securities and Exchange Commission (SEC).

"In addition, we expect to begin accepting bitcoins 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 settle upon receipt," as stated in the same filing mentioned above.

The brand disclosed its purchase in its latest report, in which it mentioned that the move is aimed at "diversifying and maximising returns on our cash that are not required to maintain adequate operating liquidity". 

It also mentioned that a board committee had approved changes to the company's investment rules. He added that it can invest cash in gold bullion and gold exchange-traded funds, among other assets.

Tesla joins other companies that have disclosed holdings of bitcoins; for example, last summer, software developer MicroStrategy Inc. acquired approximately 425 million in bitcoins, and its CEO, Michael Saylor, has become an outspoken advocate of the cryptocurrency. 

This purchase, however, is probably one of the largest by a public company ever after a spike in 2020, when the price grew four times as much. 

But these companies that hold bitcoins in their treasuries face a risk because bitcoins and other digital assets are considered "indefinite-lived intangible assets", rather than currencies. So any decline in their value below what the company paid for them, even temporarily, can force a company to write down the value by taking an impairment charge. MicroStrategy suffered a net loss in mid-2020 because the price of bitcoin temporarily fell in September.

Atalayar_Tesla Bitcoin
REUTERS/DADO RUVIC - Depictions of the virtual currency Bitcoin and the Tesla logo

This prompted Tesla to say it will analyse its holdings in the cryptocurrency every quarter to see if an impairment is justified by bitcoin prices. "If we hold digital assets and their values decline relative to our purchase prices, our financial condition may be harmed," the company said.

CEO Elon Musk has shown a growing interest in bitcoin in recent years after tweeting in 2018 that the only cryptocurrency he owned was a quarter of bitcoin given to him by a friend, which today would be worth more than $10,000. On or about 29 January, the Tesla chief changed his Twitter bio to "#bitcoin", which drove up prices before removing that reference.

"I think Bitcoin is really on the verge of gaining widespread acceptance by mainstream finance people," he said last week on social networking app Clubhouse. In addition, Musk said he needed to be cautious with his public statements about cryptocurrencies because "some of these things can really move the market".

Tesla, for its part, said in its report that it updated its investment policy in January, but did not disclose the exact timing of its board decision or its bitcoin purchase.

"He's already telegraphed it to the market," said Meltem Demirors, chief strategy officer at London-based asset management firm CoinShares, referring to Musk's mention of bitcoin in his Twitter bio. "One of the biggest corporations in the world doing this, I think it opens the floodgates," he said.

Following tweets from Tesla CEO Elon Musk and rapper Snoop Dogg, the Dogecoin cryptocurrency, which started as a joke, surpassed $10 billion in market value.

Tesla has struggled to hold cash as it ramps up vehicle production, yet its shares soared 480% in 2020. Tesla took advantage of that surge by selling billions of dollars in new shares, shoring up its cash position. 

The news sent the price of bitcoin soaring again. From $39,500, the currency hit $46,856, a percentage increase of almost 19% (18.6%, to be exact).

Part of bitcoin's appeal to some businesses is that it is not controlled by any government or nation. Moreover, opening a bitcoin account does not require providing identifying information. Bitcoin is anonymous and no government could freeze a bitcoin account like they could a bank account.