Corporate uptake hits inflection point as Tesla’s Elon Musk buys Bitcoin.
In a move that has electrified the crypto market, Tesla has added $1.5 billion worth of Bitcoin to its balance sheet and expects to accept the cryptoasset as payment in the near future.
The news is not only another milestone for Bitcoin, which soared 20% on the headlines, but is likely to be a tipping point in the transformation of corporate balance sheets. Tesla’s example could trigger waves of adoption as more CEOs and treasurers are encouraged to add Bitcoin to their own reserves.
One small step for Bitcoin
Speculation over Tesla’s potential adoption of Bitcoin has been widespread in the weeks prior to Elon Musk’s Bitcoin purchase. Musk added Bitcoin to his Twitter bio and later called the cryptoasset an unquestionably “good thing” that is “on the verge of getting broad acceptance.”
Even so, the market reacted with exuberance when the headlines hit. Bitcoin rocketed 12% in about 20 minutes and later reached a new all-time highmaking the market cap of the cryptoasset larger than Tesla itself.
Yet while the short-term impact was sensational, the long-term effects are likely to be even more significant.
Until now, most other firms adding Bitcoin to their reserves have only been dipping their toes. Square holds 0.2% of their balance sheet in Bitcoin and mining company Riot blockchain holds 2.4%. Tesla, on the other hand, has waded right into the market with a much larger allocation.
Tesla’s $1.5 billion in BTC is approximately 7.7% of balance sheet allocation
According to the most recent 10K filing, Tesla’s balance sheet totals around $19.4 billion gross, which means the $1.5 billion in Bitcoin represents an allocation of around 7.7%.
The thesis behind Tesla’s Bitcoin allocation reflects the same ideas espoused by pioneering investors like Paul Tudor Jones. Tesla said in a filing that the decision was part of its broad investment policy as a company and was aimed at “diversifying and maximizing its returns on cash not reserved for operations.”
One giant leap for payments and balance sheets
As one of the largest companies in the world, Tesla’s endorsement of Bitcoin legitimizes the cryptoasset to corporate treasurers everywhere.
Adding Bitcoin to a company’s balance sheet is a way to preserve purchasing power in a world of record global debt.
This could spark a race for companies to add Bitcoin to their balance sheet as a way of preserving purchasing power in a world of record global debt, low interest rate and massive monetary stimulus. According to analysts at RBC Capital Markets, even Apple could be next, if not the 1,400 corporate executives that attended Microstrategy’s Bitcoin conference in the first week of February.
Better yet for Bitcoin, some of these companies are likely to follow Tesla by accepting payments in the cryptoasset. This would be supported by recent efforts by PayPal and Visa to integrate banking infrastructure with digital assets, making it easier for these payment initiatives to gain traction, and further increasing adoption and demand.
Moreover, PayPal or Visa are not alone. Not only did Canadian insurance company Mogo recently purchase $1.5 million in Bitcoin but they also added a Bitcoin trading service to their loan and mortgage offering. And following Microstrategy’s historical $425 million investment in Bitcoin, Michael Saylor also published a playbook specially for advising corporates on how they should invest in Bitcoin.
It is precisely this widespread participation that eToro’s report Institutional Cryptoasset Trading: Looking for the Missing Bits” identifies as critical to the next phase of institutional adoption that will lead to continued upswing in the prices of cryptoassets. Tomer Niv, eToro crypto business development manager, said,“
“Only by widening the playing field and facilitating more participation will crypto reach and maintain a market cap of $2 trillion and beyond.”
In other words, the recent collective corporate adoption is unlikely to stop any time soon. More significantly, it adds real weight to the forecasts of such investors as Anthony Pompliano, who believes that the price of Bitcoin will reach $400,000, and the Winklevoss brothers, who predict $500,000.
This post originally appeared on the eToro blog.
Cryptoasset investing is unregulated in most EU countries and the UK. No consumer protection. Your capital is at risk.
This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results.
All contents within this report are for informational purposes only and does not constitute financial advice. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.
This content is sponsored and should be regarded as promotional material. Opinions and statements expressed herein are those of the author and do not reflect the opinions of The Daily Hodl. The Daily Hodl is not a subsidiary of or owned by any ICOs, blockchain startups or companies that advertise on our platform. Investors should do their due diligence before making any high-risk investments in any ICOs, blockchain startups or cryptocurrencies. Please be advised that your investments are at your own risk, and any losses you may incur are your responsibility.
Featured Image: Shutterstock/YIUCHEUNG