Tesla Buys Bitcoin
It was a busy day yesterday, so this is going to be short. It’s always fun when that happens on a Monday…after the Super Bowl. We are still keeping it pretty tight when it comes to gatherings but hopefully that will change soon. It seems that the pace at which people have been getting vaccinated has improved a lot since the end of the year. Perhaps we will get back to some type of normal before the end of the year?
I try to keep the bitcoin comments to once per week. As I have said many times in the past, I am not a fanatic. I do think that it could be a big deal but I also think that Emerging Market stocks could be a big deal. I also think that commodities could be a big deal. The point is that bitcoin is an asset in my mind. Just like other assets, I try to figure out if it makes sense as a holding in my personal portfolio and how big that holding should be.
The thing about bitcoin, probably the most important aspect really, is that there is limited supply. There will only ever be 21 million of them in the existence. Yesterday, they may have become a lot more scarce, as Tesla announced that they have bought $1.5 billion worth of bitcoin. According to the Wall Street Journal, Tesla disclosed the bitcoin purchase in its latest annual report filed on Monday, saying the move aims to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Tesla said the purchase came after a board committee approved changes to company rules on investments, adding that it can also invest cash in gold bullion and gold exchange-traded funds among other assets.
Tesla will also take payment in bitcoin for their products.
While this is going to be viewed as a bullish endorsement for bitcoin, it traded up sharply on the news, I think there is a bigger story here. First, does this move by such a high-profile CEO give other companies “air cover” to do the same? Yes, there have been other companies that have made the leap: MicroStrategy (MSTR) and Square (SQ) but Tesla is much bigger than than both of those.
If companies are looking at alternatives to storing cash (fiat currency) on their balance sheets, what does that say about their views of the value of that fiat currency going forward?
Taken a step further, to a more personal level, what does that say about asset allocation going forward? Will this push investors further and further out on the risk curve? Does this change the nature of what we view as traditional “safe havens?” There are no right or wrong answers to these questions but they are fun to think about (at least for me).
*Please remember that nothing in these pages should be considered investment advice. It is highly likely that my goals, timeframe and risk profile are different from your own.