Some say Tesla’s announcement could pave the way for many other companies to reveal similar plans as the cryptocurrency gains new popularity among young, wealthy and tech-friendly investors.
Telsa on Monday disclosed in an SEC filing that it invested an aggregate $1.5 billion in Bitcoin. “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,” the disclosure added.
Bitcoin initially spiked some 20% on the heels of Tesla’s disclosure, and peaked at a new record of over $48,000 early Tuesday morning before receding to just over $46,500 by noon ET. In 2021 alone Bitcoin has climbed some 58%.
“I think it’s partly for marketing purposes, they want to attract a certain clientele that probably overlaps pretty closely with people who invest in cryptocurrency,” David Yermack, a professor of finance and business transformation at New York University’s Stern School of Business, told ABC News of Tesla’s announcement. “So they’re promoting their brand as a crypto-friendly firm and getting a ton of free publicity.”
“But I also think it’s probably overdue that a large company would disclose putting some of its treasury balance into cryptocurrency,” he added. “Because I’ve been hearing rumors of this for a long time.”
Moreover, Yermack said he predicts this Tesla is among “the first of many companies who will probably be making these disclosures as we move forward.”
“Tesla may be creating a bit of regulatory cover for other people now to come out of the closet,” he said, noting that how auditors and regulators react to this news will be especially interesting.
Vocal Bitcoin evangelist Michael Saylor, the CEO of software firm MicroStrategy, tweeted congratulations to Tesla for adding Bitcoin to its balance sheet on Monday.
“The entire world will benefit from this leadership,” Saylor wrote. In a follow-up tweet, he said Tesla has “de-risked the acquisition of #bitcoin by public companies and accelerated the digital transformation of corporate balance sheets.”
In December 2020, Saylor urged Tesla CEO Elon Musk to convert the car company’s balance sheet to Bitcoin. Musk, an avid Twitter user, responded with a tweet that sparked initial chatter foreshadowing Tesla’s Bitcoin announcement this week.
Despite its social media backing from investing celebrities, Yermack still cautions that there is a lot of risk involved for everyday investors who may have their eyes on Bitcoin.
“Bitcoin over its history has been very risky,” he said. Yermack noted that Tesla’s $1.5 billion in Bitcoin “is a tiny investment for them relative to the size of the firm” as Tesla is valued at some half a trillion dollars.
“I think relative to fiat currencies there’s at least a case to be made that it has better long-term store value because of the potential for lower inflation,” he said. “But if one resorts to the data it has been very unstable … it has been much more volatile than any currency and really much more volatile than even technology stocks and and other risky equity investments.”
While cash-rich companies might be able to dabble in Bitcoin, for everyday investors, Yermack cautioned, “I think you should be careful and not put in any money that you’re not prepared to lose.”