Opening the next era of cryptocurrency? What does Tesla's move mean?

Wu said author | Colin Wu

Editor of this issue | Colin Wu

On the evening of February 8th, Beijing time, just a few hours after Tesla was interviewed by five Chinese ministries for continuous quality problems, Tesla shocked the cryptocurrency industry in a surprising way. It announced that it had purchased $1.5 billion worth of Bitcoin and stated that it would support Bitcoin payments in the future.

The world's richest man Musk's previously secretive attitude towards Bitcoin has finally been fully released at this moment. The price of Bitcoin has soared to 50,000 US dollars, an increase of more than 20%, and the market value is approaching 1 trillion US dollars. Undoubtedly, Tesla's move will further promote more mainstream companies and institutions to buy Bitcoin, and promote cryptocurrency into mainstream society and become a trend choice for the younger generation.

But from another perspective, Tesla and Bitcoin have long had a resonance in their audiences. This incident may have little impact on people outside of the common audience. Since Tesla is a US listed company, the US government's regulatory influence on cryptocurrencies will continue to increase, and the relevant policies of the Ministry of Finance are still the "Sword of Damocles".

Regardless, Tesla is still the first "top-tier" company to resolutely purchase Bitcoin with huge funds. In the context of the epidemic leading to excessive money supply and increased inflation in the next three years, it is worth continuing to pay attention to whether other leading Internet companies, traditional fund institutions and even national central banks will buy Bitcoin on a large scale.

The original text in Tesla’s financial report is as follows (slightly deleted):

In January 2021, we updated our investment policy to provide us with greater flexibility to further diversify and maximize the returns on our cash. The policy has been formally approved by the Audit Committee of the Board of Directors, and we may invest a portion of our cash in certain alternative reserve assets, including digital assets, gold, etc. Since then, we have invested a total of $1.5 billion in Bitcoin in accordance with this policy, and may acquire and hold digital assets from time to time or for the long term. In addition, we hope to begin accepting Bitcoin as a payment method for our products in the near future, subject to applicable laws .

The prices of digital assets may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the popularity of such assets is a relatively new trend, and their long-term adoption by investors, consumers and businesses is unpredictable. In addition, their lack of physical form, reliance on technology for their creation, existence and transaction verification, and decentralized authority may expose their integrity to the threat of malicious attacks and technological obsolescence. Finally, it is unclear to what extent securities laws or other regulations may apply to such assets in the future, and they may change in the future. If we hold digital assets and their value declines relative to our purchase price, our financial condition may be harmed.

Tesla's move has the following positive implications for the cryptocurrency industry:

First, it will encourage more institutions and listed companies to buy cryptocurrencies such as Bitcoin. Previously, listed companies have purchased a large number of mining machines and Bitcoin. According to data from Bitcoin Treasuries, more than $6.9 billion of Bitcoin is currently held by listed companies, and US-listed companies such as Mara have purchased more than 200,000 S19 and other latest series mining machines. But the significance of Tesla is naturally self-evident. It may be the first leading company to purchase Bitcoin on a large scale with "real money". After this move, buying Bitcoin may become a trend, and more listed companies will participate in it.

Second, promote more institutions to adopt cryptocurrency payments. Tesla emphasized that it will promote the use of Bitcoin payments, which will expand the payment value of cryptocurrency in addition to value storage. Third, promote cryptocurrency to be more recognized by popular culture and the younger generation. Tesla and Musk represent the top of today's mobile culture, and Musk personally stands at the top of traffic. Their true recognition of cryptocurrency will make it more popular among ordinary people.

Previously, Wu said that based on data analysis, the price of Bitcoin (then priced at about $25,000) still had room for 3-4 times of growth.

From the perspective of concerns:

First of all, the audiences of Tesla and Bitcoin overlap. An analyst compared the market value of Tesla since the end of 2018 with the trend of Bitcoin in 2017 and found that they were surprisingly consistent. The user and investor portraits of the two do have very obvious similarities: young people and men are the main ones; most of them are geeks and technology worshippers; rebellious personalities, etc. In addition, there is a very interesting data: the proportion of Tesla users who own their own properties is relatively small. The habit of not buying houses is also popular in the cryptocurrency circle.

Therefore, Tesla's large-scale purchase of Bitcoin may not be a symbol of "going out of the circle" for the audience. If, as the Royal Bank of Canada analyst said, Apple may become the next company to buy cryptocurrency; or if Bridgewater starts to buy Bitcoin on a large scale (very likely), the value and significance of going out of the circle may be greater. This also means that Tesla's behavior tends to be more unique and the demonstration effect is average.

Secondly, as a US listed company, Tesla is cautious about regulation, as can be seen from the cautious words in its financial reports. In 2018-2019, Musk had many disputes with the SEC and others due to suspected securities fraud. It is not known whether Musk's comments on Bitcoin on social media and Tesla's large purchases will be considered by regulators to be suspected of market manipulation.

In the future, the core influence of US regulators and institutions on Bitcoin and other currencies will become more prominent for a period of time. This will be beneficial to decentralized currencies led by Bitcoin, but not to centralized cryptocurrency projects, stablecoins, platform coins, etc. At present, the attitude of the US Treasury Department is still unknown. One of the signs is whether it will pass the subsequent clauses to strengthen the transparency of transaction information. Refer to the biggest "black swan" in the currency circle: Is the new US government hostile to cryptocurrency after Yellen takes office? And will the SEC take further action against the unruly Musk. (Picture from the coin life)