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Tesla announced on Monday that it has invested $1.5 billion in Bitcoin cryptocurrency. According to a CNBC report, the company bought the bitcoin for “more flexibility to further diversify and maximize returns on [its] cash”. Right after, Bitcoin gained over 15 per cent in price, approaching $44,500 on Monday and rising to $48,095 as of February, 12, according to CoinBase.
The automaker also said it’ll accept the currency as payment for its electric vehicles soon after. The $1.5 billion worth of bitcoin, therefore, gives the company liquidity in the cryptocurrency, needed to maintain the operation of the company in times of a crisis.
The $1.5 billion makes in fact a significant part of Tesla’s cash and cash equivalents on hand. The data for 2020 provides that the company had over $19 billion in cash at the end of 2020. The move into bitcoin undoubtedly represents the new strategy revealed by Elon Musk in a filing with the U.S. Securities and Exchange Commission, which states that investment in the digital currency may grow.
Bitcoin has attracted investors and companies globally because of its security; however, it has been used more as an asset rather than a payment method so far; likewise, gold has been a store of value. However, a growing number of companies begin to accept Bitcoin as payment, mounting a precedent for Bitcoin to become widely used to pay for goods and services. Microsoft and Starbucks are well known and among those companies, whereas Tesla could be the first automaker to do so. The question is – who would actually buy an electric car with Bitcoin?
According to an analysis of FXOpen Markets Limited, the world currently is experiencing a similar interest in the growth of Bitcoins as it did in December 2017. However, the analysis highlights and it is worth mentioning, that many of the buyers are newbies, who rushed to buy cryptocurrencies under the influence of emotions. If it is so, the market is likely to experience a correction in the future. The fact is, Bitcoin is still considered by many to be an investment.
There are other digital currencies, while Bitcoin is a basic implementation of the Blockchain technology. Some analysts suggest that digital currency could eventually replace cash one day, as it correlates with the principle of anonymity, autonomy, and a more decentralized system of payment. Financial services corporation these days prepare their payment networks to handle cryptocurrency assets, such as Visa and Mastercard for example.
Mastercard serves users worldwide and operates 2,229 million cards as of the second quarter of 2020. Vice President Raj Dhamodharan says that Mastercard is seeing cardholders buy crypto assets, thus, it gives a reason for crypto cards implementation, which would allow users to convert cryptocurrencies into traditional ones for further utilization and spending.
Becoming a global phenomenon in recent years, cryptocurrencies suggest a trustless system, undermining the global political economy arrangement which is based exactly on trust. Being a trustless system means is not dependent on any political or economic institution or even government. This kind of decentralization can be considered both, positive and negative. But for an average consumer, the trustless system could absurdly seem not trustworthy.
It is only a matter of time before Bitcoin finds more widespread use. Eventually, the cryptocurrency made another large curve towards mainstream acceptance after Tesla has made its investment. Yet, we cannot predict whether this investment is an advantage for Tesla and if so, how this innovation will reflect on the company’s competitiveness. Nonetheless, the tendency is clear, digital currencies increasingly gain in importance. And if they ever will dominate the economy, it will not happen overnight.
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