Insights into the Tesla / Bitcoin Situation
Tuesday, February 9th (98 Second Read)
NASDAQ Closes Above 14K for the First Time Ever
Dow: -0.03% | Nasdaq: +0.14% | S&P: -0.11%
Catch Up Quick
SpaceX began accepting $99 preorders for its Starlink satellite internet service → Musk reportedly is eyeing an IPO
Sunday’s Super Bowl posted its worst viewer ratings since 2007 (CNBC)
Hyundai and Kia confirm they are no longer in talks with Apple ($AAPL) with respect to a Apple Car production effort
Spotify ($SPOT) confirms the testing of a live lyrics feature in the U.S.
The UAE’s Hope Probe successfully reached Mars
New Jersey has the highest coronavirus death rate in the nation → 1 out of every 406 residents has died from the virus (Axios)
The CBO estimates the $15 federal minimum wage bill proposed by Democrats would lift 900K out of poverty, though cut jobs for 1.4M workers by 2025
Facebook ($FB) is cracking down of coronavirus vaccine misinformation
The average yield of U.S. junk bonds fell < 4% for the first time in history
Reddit raised $250M in a Series E funding → doubling its valuation to $6B
House Democrats’ proposed coronavirus relief bill would send $1.4K per-person payments to most households
President Biden said the U.S. would lift sanctions only if Iran stops enriching uranium beyond the limits of the 2015 nuclear deal
The Senate convened for Trump's second impeachment trial
U.S. State revenues fell ~1.6% in 2020 → ~3.4% lower than pre-pandemic projections
Thought of the Day
As you’ve probably heard, yesterday, Tesla ($TSLA) announced via SEC filing that it bought $1.5B worth of Bitcoin while revealing plans to eventually accept the cryptocurrency as payment for its products
A few months ago, crypto enthusiast Mike Saylor commented the following on a a Musk Bitcoin meme:
The news sent Bitcoin soaring ~20% on the day, in which it currently trades at over $47K per token
Like any currency, crypto holds value via the ability to serve as a form of payment and a store of value, with the latter being more prevalent within the status quo
Investors and speculators are pinning an even higher premium on Bitcoin relative to the U.S. dollar given its inherently finite supply juxtaposed to the estimated ~$9T the Federal Reserve has injected into circulation since Q3 2019
But with payment processors (Visa, Square, etc) beginning to assume crypto functionality, and government stimulus renewing concerns about inflation (among other potential issues), Musk’s drive for diversifying out of cash is understandable
But $1.5B is only 7% — 8% of Tesla’s ~$20B cash balance, that was recently bolstered via a $5.0B equity offering back in December
This capital raise was essentially free for Tesla, as shares rose over the course of the following week driven by the news of the offering, despite evident equity investor dilution
Two major takeaways:
1) The Bitcoin news is yet another example of a F500 company institutionalizing the use of crypto → a trend we’ve seen accelerated and solidified over the course of the pandemic as digital wallets and payment infrastructure work to catch up with demand
2) Musk has seemingly found a loophole in financial systems → given Bitcoin is less regulated by nature, in converting cash to the crypto, Musk can inflate the value of said capital via social media with far less repercussions (Musk was previously charged for fraud after his “taking Tesla private at $420” tweet back in 2018)
Supporting examples: 1) two weeks ago, Musk added the hashtag #bitcoin to his Twitter bio which pushed up its price by as much as 20% 2) Musk has also been relentless hyping / pumping up the price of Dogecoin, with dozens of tweets, pushing his vast audience towards the usage of crypto platforms where they can also buy…you guess it…Bitcoin!
The Bottom Lines
Interestingly, one of the largest yet overlooked hurdles for accepting Bitcoin as a form of payment is transaction processing time → Bitcoin is only able process 3.3 — 7.0 transactions per second compared to Visa’s 65K
Thus, companies looking to accept Bitcoin might actually want to own some on their balance sheet to aid in stabilization and facilitate transactions, as longer processing times and substantial volatility yield various additional risks!
Win 1 of 4 $50 Amazon Gift Cards!
Enjoying these excerpts? Want to help us grow? → refer a friend for a (good) chance of winning one of multiple $50 Amazon Gift Cards we are giving away!
1) Share our website with family + friends
2) Comment below or email us (firstname.lastname@example.org) something to let us know who you referred → can be a name, email, etc
3) You (as well as new subscribers) will all be entered in the promotion!
Four lucky winners announced next Thursday 2/18!