The market has reacted hotly, but many people are still wondering why Tesla bought Bitcoin.
Bitcoin’s high price volatility is a common recognition for those who support or reject Bitcoin, so why companies like Tesla are trying to increase the risk in their financial statements by buying such highly volatile assets. There is no choice but to be curious.
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“Diversification of cash portfolio”… I saw an opportunity in Bitcoin
Tesla made it clear in a disclosure filed with the Securities and Exchange Commission (SEC) that “we saw Bitcoin as an opportunity to diversify our portfolio of cash and cash equivalents.”
Businesses have cash and cash equivalents obtained through business or other business activities. Usually, corporate papers (CP) or short-term government bonds that can be converted into cash at any time while responding to sudden expenditure factors with a certain level of cash are held. Trying to get the least profit by investing in your assets.
Tesla also explained, “We wanted to change our company’s investment policy so that we could diversify our cash and cash equivalents and increase our return on investment.”
Of course, these changes are not without risk. Bitcoin’s high price volatility is the greatest risk, and Tesla acknowledges it. Tesla said, “After holding bitcoin, financial conditions could deteriorate significantly if the price drops significantly below the original purchase price.”
But nevertheless, it would not have been possible to ignore the bitcoin price rally, which jumped more than 300% last year and already 62% this year. Elon Musk, Tesla’s CEO, also seems to have taken into account that if they participate in the investment, their investment sentiment will become more intense, and additional inflows of other listed companies or institutional investors will lead to bitcoin upside momentum and further increase in price. .
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`Noise marketing` or `brand strategy to add innovation`
There is also a view that sees the move of Musk and Tesla as a kind of noise marketing, a public relations activity that makes a hot topic.
“Thankfully, Mr. Musk brought the unexpected and surprising news to the bitcoin market, which he was trying to get bored with,” said Senior Market Analyst Grayg Alam Oanda. “I made everyone talk about Tesla and Bitcoin. “I see Ryo as a kind of noisy public relations activity.”
On the other hand, some see it as a brand management strategy that tries to incorporate the spirit of Bitcoin with Tesla. Bitcoin is often accepted as a digital currency led by an idolatrous revolutionary named Satoshi Nakamoto, or a group of revolutionaries who rebelled against the traditional financial system, payment and settlement system, and legal currency.
It seems that Musk’s CEO attempted to incorporate this rebellious image into his company. Tesla is also an innovative company that is opening up the era of electric vehicles, rebelling against the traditional fossil fuel-driven automobile industry.
In particular, while existing automakers in the US have taken a method of selling to customers through a dealer system, Tesla is using a differentiated strategy in marketing by choosing a method of selling directly to customers. This is a concept that fits well with Bitcoin, which stands for’decentralization’.
It is possible to prepare in advance for the use of Bitcoin as an alternative to the dollar.
In addition, Tesla’s $150 million investment is also accepted as a first step in contemplating an alternative to the dollar. This is a strategy in preparation for a situation in which the dollar depreciation and hegemony are shaken due to the enormous liquidity released by the recent Corona 19 pandemic (a global pandemic).
Bitcoin is not easy to perform as a payment method (= currency) due to high price volatility until now, but there is a growing expectation that it can eventually partially replace fiat currencies such as the dollar.
Simon Peters, an analyst specializing in virtual assets of Itoro, an alternative investment platform, interpreted, “The news of Tesla’s adoption of bitcoin investment and payment methods is read as a way to prepare for such a change.” He explained that there is no evidence yet, but it is also in the same context that there is a prospect that Apple and Google Alphabet may make a move to install bitcoin in their payment system.
In particular, Musk’s CEO appeared as an adventure investor, establishing an electric vehicle company that did not have a big vision when the company was founded and investing in SpaceX, which promotes space business, and even worked in payment ventures before Tesla was founded.
‘If I do, all will follow’… Market expansion total stop
In addition, it seems that Musk, who believes in the potential of bitcoin, plays a leading role in bringing it into the mainstream, thereby reinforcing the network effect.
In fact, Musk’s CEO had the experience of investing $22 million in Internet-related business before Tesla was founded and selling it to create X.com, a startup that is now PayPal. Currently, PayPal is one of the leading providers of Bitcoin payments.
In addition, famous hedge fund investors such as Stanley DeKerken Miller and Paul To the Jones have recently turned to support bitcoin, and Bill Milly, the “hedge fund legend,” who created Miller Value Partners, recently declared an investment in bitcoin.
In this situation, there would have been confidence that if Tesla actively jumped into bitcoin, it could attract successive participation from other companies in this market. JMP Securities analyst Devin Ryan expects that this announcement will take the adoption of bitcoin a step further.
His colleague, Brian McKenner, also said, “The participation of CEO Musk will create a huge network effect in the virtual asset market.” I predicted it could be.