The Elon Effect: Bitcoin soars to a record on Tesla's $1.5B investment

Tuesday, February 9, 2021 by Snacks

The man, the meme, the legend... Elon Musk is making crypto headlines (again). Bitcoin surged as much as 20% to a record high of $47K yesterday, after Tesla revealed it invested $1.5B in BTC. Tesla also said it'll start accepting the crypto coin as payment for its cars (casual). Tesla's not the first company to get in on Bitcoin, but it's the biggest so far.

  • Last year: MicroStrategy poured $1B+ into Bitcoin, MassMutual invested $100M, and Square bought $50M worth of BTC for its corporate portfolio.

1 BTC = 1 Model Y?... Tesla’s move isn't a total shocker: Elon has been a big crypto cheerleader recently, and his Twitter endorsements have been credited with boosting coins like BTC. But why would Tesla's board allow it to pour $1.5B of its $19B cash reserves into a volatile crypto? In PR speak: To “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Human translation: "We have some extra cash and think it’s a good investment."

  • Diversify: While Bitcoin is crash-prone, some see it as a hedge in case the US dollar loses too much value and prices soar (aka: inflation). While cash can theoretically be printed endlessly, Bitcoin supply is capped at 21M coins.
  • Maximize: Bitcoin has been on a tear, nearly 5X'ing since October (partly because of institutional buying). Tesla's hoping to gain more than it would with a traditional investment (or simply holding cash). If a company feels comfortable with its cash situation, it might place corporate funds in riskier investments — like Tesla just did.

To go mainstream, a cryptocurrency must pass the "faith & acceptance" test... and Tesla's investment just brought Bitcoin closer to that. The US Dollar has value because it's backed by the government and controlled by the Fed. Bitcoin is a decentralized currency (aka: not controlled by a central bank), so it's value lies in people believing it has value. Tesla's latest move is a big vote of confidence: it could inspire other companies to invest and speed up mainstream Bitcoin acceptance. But if BTC crashes and Tesla loses on its investment, then it could have the opposite effect.

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