In early February, Tesla reportedly disclosed in a Securities and Exchange Commission (SEC) filing that it had bought $1.5bn worth of bitcoin in January. The cryptocurrency has rallied this year, touching new record highs regularly with its market value passing the US$1trn-mark the week of 15 February. YTD (to 21 February), bitcoin is up 94%, trading at around US$57,492.
Wedbush Securities Analyst Daniel Ives sees Tesla’s investment returning a digital paper profit of at least US$1bn. In a report published on 20 February, Ives writes that “based on our calculations, we estimate that Tesla so far has made roughly US$1bn of profit over the last month…To put this in perspective, Tesla is on a trajectory to make more from its Bitcoin investments than profits from selling its [EV] cars in all of 2020,”. Tesla reported a FY20 profit of US$721mn. Tesla has also said that it plans to start accepting the cryptocurrency as a form of payment in the near future.
Nevertheless, Ives believes that, while other companies may follow suit, swapping some of their cash for bitcoin, he expects less than 5% of public companies to go down this route until “… more regulatory goal posts are put in place around the crypto market, which is clearly starting to gain more mainstream adoption in 2021 and we believe will have a seismic impact for blockchain, payments, banks, and semis in the years to come,”.
Tesla’s CEO Elon Musk also recently tweeted that “Tesla’s actions is not directly reflective of my opinion. Having some bitcoin, which is simply a less dumb form of liquidity than cash is adventurous enough for an S&P 500 company.’
Still, nothing is certain, and Tesla’s unrealised on-paper gain could easily turn into a $1bn loss if the crypto currency’s price were to fall and Tesla then sold their bitcoin holdings at a loss.
Written exclusively for Moore South Africa by Marco de Matos from
Anchor Research.