In general, entrepreneurs are forward-thinking people who are willing to go out of their way to offer a new solution or alternative to an existing problem. Alternatively, they can develop a new way to view existing products or services that will allow them to become attractive in a slow market. Elon Musk covers both of the categories with his many initiatives, including his Tesla brand. When he announced in February that Tesla was purchasing $1.5 billion worth of Bitcoin (BTC), the world took notice. Jason Simon, a cryptocurrency and FinTech expert with a strong background in analyzing financial activity, explains what Tesla’s move means for the cryptocurrency ecosystem.
On February 8, Tesla filed a notice with the Securities and Exchange Commission (SEC), announcing that it had purchased $1.5 billion in BTC. The goal, compared to that of some cryptocurrency whales, wasn’t to bank on the potential growth of digital currency but, rather, to begin allowing consumers to purchase vehicles for BTC. Explains Simon, “Tesla became the first major auto manufacturer to announce that it would allow its customers to buy vehicles using cryptocurrency. By purchasing $1.5 billion worth of BTC, it gave itself the underlying support to cover any potential value fluctuations that may occur moving forward.”
The idea of injecting such a large amount of its funds into BTC shows that Tesla and Musk are ready to embrace the future. At the end of 2020, the company held around $19 billion in cash and cash equivalents, which means Tesla has staked a large percentage of its funds on the future of cryptocurrency as a method of payment. Musk has been a support of digital currencies for years, and this is another example of his belief in the currency moving forward.
Even if Musk hadn’t intended the BTC purchase to help it increase its financial base, that’s exactly what happened. Simon states, “When Tesla purchased the BTC, Musk began tweeting about it. Not long after that, the price of the digital currency increased by 20%. Now, it has reached more than $60,000, which means that Tesla has earned around $1.2 billion on its investment. When the purchase was made, the price of one BTC was around $33,000.”
The investment marks another step forward for the use of cryptocurrency as an alternative – not a replacement – of fiat. Bitcoin, when it was first posited by Satoshi Nakamoto, was not envisioned as an investment scheme that could make people rich. Rather, it was meant to be a peer-to-peer currency that eliminated the middleman, such as banks, and gave the world’s unbanked access to financial solutions. It was the beginning of a paradigm shift in how currency was viewed and, as more large companies get involved, the more the shift will occur.
Recent high-profile entrances into the world of cryptocurrency as a method of payment reinvigorates that initial design, as was outlined in Bitcoin’s whitepaper. Announcements by companies like Visa, PayPal and Tesla prove that digital currency can play a legitimate role in a larger financial system without subverting the policies and procedures that have been in place for decades. “The world is constantly changing, constantly in a state of flux, even if we don’t always recognize it,” adds Simon. “It’s important to view any new development with a clear head, weighing its merits against its disadvantages before a decision is made. Cryptocurrency has seen huge strides in its acceptance over the past ten years and there’s little doubt that, before 2030, it will have a legitimate place alongside existing forms of currency seen around the world.”