The price of Bitcoin surged to an all-time high of $48,000, after Tesla, revealed that it had purchased $1.5 billion of the cryptocurrency. In its annual 10-K regulatory filing with the Securities and Exchange Commission (SEC), the electric automaker revealed that it had stockpiled Bitcoin as part of its investment strategy.
In the regulatory filing, Tesla divulged that it now held digital assets subject to market volatility:
“We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested an aggregate of $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. 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 prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, their lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks and technological obsolescence. Finally, the extent to which securities laws or other regulations apply or may apply in the future to such assets is unclear and may change in the future. If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed.
Moreover, digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale, which may adversely affect our operating results in any period in which such impairment occurs. Moreover, there is no guarantee that future changes in GAAP will not require us to change the way we account for digital assets held by us.
Finally, as intangible assets without centralized issuers or governing bodies, digital assets have been, and may in the future be, subject to security breaches, cyberattacks or other malicious activities, as well as human errors or computer malfunctions that may result in the loss or destruction of private keys needed to access such assets. While we intend to take all reasonable measures to secure any digital assets, if such threats are realized or the measures or controls we create or implement to secure our digital assets fail, it could result in a partial or total misappropriation or loss of our digital assets, and our financial condition and operating results may be harmed.”
“Whether there is someone out there that would actually buy a Tesla with bitcoin now is another thing but this is a big move by the company. Some other companies may be tempted to follow but the vast majority will be far too cautious to expose themselves to the volatile world of cryptos. Musk isn’t one to shy away from bold moves though and has now put his money (well, Tesla’s) where his mouth is. Either way, it’s off to the moon we go,” stated Craig Erlam with foreign exchange firm OANDA.
This most recent news now begs the question how investors will view the electric automaker.
“I think one of the big issues we’ll see that many people had going into this was: Should I trade Tesla as a technology company? Should I treat Tesla as an automobile company? And I think now as a Bitcoin investment it changes how you look at Bitcoin itself in terms of where will this start fitting into the balance sheets of major corporations, as well as day-to-day life. How does their board, C-suite and large shareholders feel about this? It’ll be interesting to see all the parties that have a voice over the next few months, when they weigh-in, and if this philosophy changes for Tesla, a little bit more,” explained TD Ameritrade Chief Strategist, JJ Kinahan.
In 2020, Tesla’s stock skyrocketed 500% and for a spell became the fifth most-valuable American company. By January 2021, its founder, Elon Musk, surpassed Jeff Bezos, to become the wealthiest person on the planet. As of February 2021, Musk’s net worth is estimated to be roughly $206 billion.
“If any lesser mortals had made the decision to put part of their balance sheet in Bitcoin, I don’t think it would have been taken seriously. But when the richest man in the world does it, everyone has to take a second look,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.
Unsurprisingly, the latest news of Tesla’s investment strategy ignited a Bitcoin frenzy, sending the price of the crypto to a record high. To date, the price of Bitcoin has risen over 50% in 2021. Many cryptocurrency analysts now see the Tesla announcement as just the beginning of more mainstream adoption of Bitcoin, particularly by more Fortune 500 companies.
In light of the news, Bitcoin has now surpassed both Tesla and Facebook to become the ninth most valuable company on Earth. Its market capitalization is now estimated to be close to $900 billion.