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Humans tend to vilify or dismiss what they don’t understand. Humans tend to vilify people that they don’t understand and consider nonconformists.
Elon Musk and Bitcoin are two things that most financial analysts didn’t understand when both came into the public spotlight in the late-2000s with seemingly laughable ideas: an expensive, electric sports car (the Tesla roadster), and a digital currency operated by a non-government decentralized authority (Bitcoin).
In 2017, when Bitcoin was trading for less than $4,600, CEO of JPMorgan Chase Bank, Jamie Dimon, said he’d fire anyone at his bank “stupid” enough to buy Bitcoin. But things change fast. In February 2021, co-President Daniel Pinto said on a CNBC interview: “If over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved . . . The demand [for Bitcoin] isn’t there yet, but I’m sure it will be at some point.”
But financial analysts still don’t know how to react other than scoff when Musk tweets something this "crazy":
Tesla is the biggest, but not the only company invested in Bitcoin
Today's news (that Tesla will accept Bitcoin for payment) follows what happened on February 8, 2021: Tesla joined the many businesses who invested a substantial amount of cash into Bitcoin by purchasing $1.5 billion worth of Bitcoin (according to a SEC filing). Tesla had $19 billion cash on hand, so the $1.5 billion investment into Bitcoin was only about 8% of their cash assets. But the $1.5 billion investment into Bitcoin was far more than any other company before.
Fintech company Square invested $50 million in Bitcoin in October 2020. Massachusetts’ Mutual Life Insurance invested $100 million in Bitcoin December 2020. Business intelligence company MicroStrategy invested over $1 billion over the course of 2020. Even Wikipedia has accepted Bitcoin for donations since 2014, KFC Canada accepts Bitcoin for fried chicken, and Overstock.com accepts Bitcoin for home goods.
Furthermore, Bitcoin has become easier to purchase for retail investors through companies like Robinhood, PayPal, and Square’s CashApp.
Tesla has become the biggest company to make the largest purchase of Bitcoin. And Tesla now becomes the biggest company to accept Bitcoin for payment.
What is additionally significant is the fact that Musk said, "Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency." In other words, Tesla won't convert Bitcoin payments back into cash, but will increase their Bitcoin holdings through customer purchases.
Clearly, Tesla and Elon Musk have high confidence in Bitcoin for the future.
Takeaway: Tesla could help Bitcoin go mainstream
Any form of payment becomes widespread only when people trust it and know that they can use it anywhere. The U.S. dollar is backed by the “full faith and credit” of the U.S. government and subsequently, is the most widely used and accepted currency in the world.
Bitcoin will only become widely used and trusted as more and more big companies begin to invest in it and accept it as payment.
With Tesla’s acceptance of Bitcoin for payment, Tesla could help to accelerate mainstream acceptance of Bitcoin and could help increase investment into Bitcoin by large, traditional businesses. We believe that Tesla is becoming a trail-blazer for Bitcoin acceptance.
Post-script: Why Bitcoin?
Many forward-looking, progressive businesses view Bitcoin as a hedge against inflation. While world governments (esp. the United States) continue to print money and increase the money supply in order to fund their big spending, Bitcoin’s supply will be capped at 21 million. Theoretically, cash could be printed endlessly leading to inflation and decreased purchasing power. But Bitcoin’s fixed supply ensures that its value will continue to rise over time.
Furthermore, the U.S. Federal Reserve continues to keep interest rates near zero. This causes the value of U.S. bonds to remain low, so investors are looking to other places to invest their money, and have turned to the stock market, and may turn to cryptocurrencies like Bitcoin. But for now, the extreme volatility of Bitcoin continues to scare potential investors.
UPDATE: 5/12/21
Tesla has suspended its acceptance of Bitcoin over environmental concerns.
Musk said: "We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transaction, especially coal, which has the worst emissions of any fuel."
However, this is not a permanent suspension. Musk continues: "Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as [Bitcoin] mining transitions to more sustainable energy."
Musk continued with another tweet that showed Bitcoin's high usage of energy (see below):
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