Tesla buys 1.5 billion in Bitcoin! Tesla buys 1.5 billion in Bitcoin following Elon Musk’s promotion of the cryptocurrency on Twitter.
The company also stated that it expects to soon accept Bitcoin as a method of payment for its products soon. Bitcoin jumped more than 10% following the announcement.
Tesla disclosed its massive Bitcoin purchase in its annual report, saying that the move aims to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Tesla’s board committee had to approve changes to company rules on investments – other changes include the ability to invest in gold bullion and gold exchange traded funds and other assets.
The move by Tesla represents one of the biggest purchases done by a public company, and comes at a time of an immense cryptocurrency rally that started in 2020. Other companies like MicroStrategy have purchased large amounts of Bitcoin as well, having purchased $425 million in Bitcoin last summer.
Companies holding Bitcoin face an accounting risk, however – because Bitcoin and other digital assets are considered “indefinite-lived intangible assets”, rather than currencies, any decrease in their value below what the company paid for them can force a company to write down the value. This results in taking an impairment charge.
Microstrategy posted a net loss in the third quarter of 2020 because the price of Bitcoin dropped temporarily in September. Because of this, Tesla said that they would analyze their holdings in crypto every quarter to see whether impairments are warranted.
Elon Musk has shown growing interest in Bitcoin over the last few years – starting in 2018 when he admitted that he owned a quarter of one Bitcoin, gifted to him by a friend.
“I think bitcoin is really on the verge of getting broad acceptance by sort of the conventional finance people,” he said last week on the social-networking app Clubhouse. Mr. Musk said he needed to be cautious with his public statements about cryptocurrencies because “some of these things can really move the market.”
Elon has dabbled in tweeting support for Dogecoin, a cryptocurrency that started as a joke in 2013. It has resulted in a sharp increase in the currency’s price.
Other companies have been buying Bitcoin, as mentioned earlier. Square Inc., which shares Jack Dorsey as its CEO with Twitter, acquired about $50 million in Bitcoin in October. Massachusetts Mutual Life Insurance Co. acquired $100 million in December.
The difference in the move by Tesla is the fact that they plan to accept Bitcoin from users. Few companies accept Bitcoin payments directly – Overstock.com is one of the few that do.
Elon Musk also started Space Exploration Technologies Corp., as well as SolarCity, which is now a part of Tesla.
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