Bitcoin hits all time high as Tesla plans to accept it as payment
Bitcoin surged to an all-time high after Tesla Inc. said it’s invested US$1.5 billion, the biggest endorsement of the controversial cryptocurrency by a mainstream company.
The digital asset jumped as much as 16 per cent after Tesla made the disclosure in a regulatory filing, with prices exceeding US$44,000 for the first time. Tesla also said it would begin accepting the digital token as a form of payment for its electric cars. Other coins surged as well. Ether gained as much as 11 per cent to a record and Litecoin rallied a similar amount Monday in New York, according to data complied by Bloomberg.
That Tesla, one of the world’s most influential companies, and billionaire Elon Musk have thrown their weight behind Bitcoin can be seen as a key endorsement for the cryptocurrency, which has been criticized by policymakers for facilitating money laundering and fraud.
“The world’s richest man allocating US$1.5 billion of his company’s treasury to Bitcoin speaks volumes about the magnitude at which crypto gains institutional adoption,” said Antoni Trenchev, managing partner and co-founder of Nexo in London. “Tesla has now paved the way.”
Trenchev said he expects that at least 10 per cent of S&P 500 companies will be invested in Bitcoin by the end of 2022. Tesla is the only member of the benchmark equity index to disclose any purchase of the digital coin yet.
Tesla ended 2020 with more than US$19 billion in cash on hand after having raised US$12 billion in stock sales, taking advantage of a 678 per cent surge in its share price last year. Part of the demand for those shares came from passive investors forced to buy after Tesla was added to the S&P 500 in December. Some US$11 trillion of investment assets are either tied or benchmarked to the S&P 500.
Musk has been coy about his endorsement of the cryptocurrency, adding -- and then removing -- #bitcoin from his Twitter page and seemingly making public endorsements for another digital token, Dogecoin, which also hit a record Monday.
Musk is “putting Tesla’s money where his mouth is,” said Craig Erlam, senior market analyst at OANDA Europe in a phone interview. “That’s obviously far more impactful in the longer term,” he said of Tesla’s purchase of Bitcoin over Musk’s cryptic social media touts of digital assets. “A company investing that level of money, in particular, very much adds to the validation of it as an investable asset,” Erlam said.
The move follows a similar investment by MicroStrategy Inc. Chief Executive Michael Saylor. His company issued US$650 million in convertible bonds -- though the prospectus explicitly noted the cash would be used to buy Bitcoin. Saylor has become a Bitcoin evangelist, recently holding a webinar on how corporate treasurers should move some cash into the digital coin. MicroStrategy has spent about US$3 billion on the token.
Other companies have made similar investments in Bitcoin. In October, Square Inc., headed by longtime crypto advocate Jack Dorsey, announced that it converted about US$50 million of its total assets as of the second quarter of 2020 into the token. Crypto-miners, such as Argo Blockchain Plc. and Marathon Patent Group Inc., have reported buying the token as well. Proselytizers like Bill Miller of Miller Value Partners have said this was just the start of what was sure to be a trend across Main Street.
Bitcoin’s journey to a record has been marked with big swings that continue to stoke uncertainty about its outlook. Some see speculators at work and an inevitable bubble bursting. Others cite high-profile backers and interest from long-term investors as evidence of a more durable rally.
While Tesla announced plans to accept Bitcoin for purchases, hardly anyone uses the cryptocurrency for anything beyond speculation. Data from New York-based blockchain researcher Chainalysis Inc. showed that only 1.3 per cent of economic transactions came from merchants in the first four months of 2019.
Predictions for Bitcoin’s possible long-term price range from US$400,000 and more to zero. The token is designed to have a fixed supply of 21 million coins, underpinned by a digital ledger distributed across computer networks. Erlam said in a note Monday that Bitcoin could soon be eyeing US$50,000 on the back of the Tesla news.