Tesla Buys $1.5B in Bitcoin, Will Accept Crypto For Payment

Cryptocurrency gains ground, experts bullish on digital currency payment system

Tesla Buys $1.5B in Bitcoin, Will Accept Crypto For Payment
Tesla Buys $1.5B in Bitcoin, Will Accept Crypto For Payment
AP - 09 February 2021

Holders of Bitcoin may be able to cash in some of their investment in the digital currency for a brand new electric car.

Electric automaker Tesla says it has invested around $1.5 billion in Bitcoin and plans to start accepting the digital currency as payment for its high-end vehicles soon.

The price of Bitcoin soared 15.4 per cent to around $44,500 following the announcement, according to CoinBase.

The California-based electric car maker headed by Elon Musk revealed the new strategy in a filing with the US Securities and Exchange Commission, saying its investment in digital currency and other “alternative reserve assets” may grow.

Bitcoin has drawn enthusiasts for its scarcity and security, but the volatile digital currency still is not widely used to pay for goods and services. It’s mostly been a store of value, like gold, with some limited merchants like Overstock accepting bitcoin for payment. It’s also used by those distrustful of the banking system or criminals seeking to launder money.

Whether other major companies will follow Tesla’s lead in investing in Bitcoin or accepting it for transactions is unclear. A vehicle is a large purchase, which could make Bitcoin a better fit to pay for it, but the wild price swings in Bitcoin could be a significant risk to any merchant who decided to accept it.

“It was wise of Tesla to announce that it will deem its investment in Bitcoin as an alternative asset. That is certainly appropriate, because Bitcoin might be coming into greater acceptance as currency, but it is not cash,” says Anthony Michael Sabino, a professor of law at St John’s University.

Tesla said last month that it had cash and cash equivalents of $19.4 billion after selling new shares to take advantage of a rising stock price. Dan Ives of Wedbush Securities said the move gives Tesla “more flexibility to further diversify and maximise returns on its cash”.

Tesla is in a unique position to accept digital currencies for payment, since the automaker does not rely on a network of independently owned dealerships to sell its vehicles unlike traditional car companies such as General Motors and Ford.

Even with Tesla’s support, it could take some time before those who have made money investing in Bitcoin to use it to buy a car.

Jessica Caldwell, Executive Director of Insights at Edmunds.com, doesn’t expect it to become commonplace because most people take loans to buy their vehicles or lease them and do not pay in cash as, she says, most people at present would not be comfortable taking a risk with cryptocurrency on such an expensive purchase.

Other experts say it’s just a matter of time before Bitcoin finds more widespread use in transactions. “I think the trend is inexorable,” says Richard Lyons, a finance professor at the University of California at Berkeley. “Predicting Bitcoin and other digital currencies will become transactional currencies increasingly over the next five years. It’s not going to happen overnight.”