By Caitlin Ostroff, Rebecca Elliott
Tesla Inc. on Monday said it bought $1.5 billion in bitcoin, a
purchase that comes after Chief Executive Elon Musk has promoted
the cryptocurrency and other digital-currency alternatives on
Twitter.
The electric-vehicle company also said it expects to start
accepting bitcoin as payment for its products soon. Bitcoin prices
jumped more than 10% after the announcement, according to
cryptocurrency research and news site CoinDesk.
Tesla disclosed the bitcoin purchase in its latest annual report
filed on Monday, saying the move aims to "diversify and maximize
returns on our cash that is not required to maintain adequate
operating liquidity." Tesla said the purchase came after a board
committee approved changes to company rules on investments, adding
that it can also invest cash in gold bullion and gold
exchange-traded funds among other assets.
The bitcoin purchase, likely among the largest by a public
company, comes after a rally in 2020 during which the price more
than quadrupled. The cryptocurrency continues to experience big
swings.
Tesla said it would account for its bitcoin holdings as
long-term intangible assets but warned that its exposure to bitcoin
could make its financial reports more volatile. The company will
analyze its holdings in the cryptocurrency each quarter to see if
impairments are warranted based on bitcoin prices, it said in the
annual report.
Bitcoin recently traded Monday at $43,602.68, according to
CoinDesk. In January, its price averaged $34,730.12.
Mr. Musk has shown he is interested in bitcoin. Last month, he
changed his Twitter biography to "#bitcoin," a move that sent
prices for it higher, though the mention has since been
removed.
"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 also
acknowledged he needed to be cautious about his public statements
about cryptocurrencies because "some of these things can really
move the market."
Tesla didn't immediately respond to a request for comment.
"He's already telegraphed it to the market," said Meltem
Demirors, chief strategy officer at London-based asset management
firm CoinShares, a reference to when Mr. Musk added bitcoin to his
Twitter biography. "One of the world's largest corporations doing
this -- I think it opens the floodgates."
Tesla in the past has struggled to maintain cash as it ramped up
electric-vehicle production. But the company's shares soared some
480% in the year ended Friday as investors piled into
electric-vehicle makers and Tesla reported a string of quarterly
profits. Tesla took advantage of that surge by selling billions in
new stock, helping to bolster its cash position. The company's cash
holdings totaled around $19.4 billion at the end of last year, up
from around $6.3 billion at the end of 2019.
Mr. Musk's tweets, in the past, have drawn regulatory and legal
scrutiny. The Securities and Exchange Commission took issue with
tweets he made in 2018 in which the Tesla boss said he had secured
funding to take Tesla private. Mr. Musk and the SEC later settled
with a deal intended to limit his Twitter use, though the
businessman has since used the platform to mock the regulator.
Later, a British spelunker sued Mr. Musk over one of his tweets,
accusing the billionaire of defamation. A jury cleared Mr. Musk,
who had deleted the tweet and apologized.
Recently, Mr. Musk's tweets about dogecoin, a cryptocurrency
that was started in 2013 as a joke, have helped drive up the price
of that virtual currency.
Tesla is joining a handful of other companies that have
disclosed bitcoin holdings. Software company MicroStrategy Inc.
acquired about $425 million worth of bitcoin last summer, and its
CEO, Michael Saylor, has become an outspoken proponent.
Payments company Square Inc., which shares bitcoin advocate Jack
Dorsey as its CEO with Twitter Inc., acquired about $50 million
worth for its corporate treasury in October. Massachusetts Mutual
Life Insurance Co. acquired $100 million worth in December to hold
in its general investment account.
Bitcoin remains prone to sharp changes in its valuation, which
might be why companies have acquired millions of dollars worth,
rather than billions of dollars, of the cryptocurrency, said Michel
Rauchs, founder of Luxembourg-based digital-assets consulting firm
Paradigma Sarl. "It is definitely greater risk but greater reward
there."
But companies may have become more optimistic on bitcoin
following the March 2020 selloff, when bitcoin recovered faster
than the broader stock market, said Joel Kruger, a currency
strategist at LMAX Group.
The added wrinkle with Tesla is the plan to accept bitcoin from
customers. Few companies now accept bitcoin directly as payment. A
number of large companies experimented with bitcoin for payment in
2014 and 2015, like Dell Technologies Inc. and Expedia Group Inc.,
but most later dropped it for lack of use.
Now, bitcoin is becoming more accessible to the public through
companies -- such as PayPal Holdings Inc. -- that enable users to
directly buy and sell bitcoin and other cryptocurrencies for their
digital wallets. Square also allows users to buy bitcoin through
its Cash App.
Bitcoin for Tesla would dovetail with the wider trend of using
cryptocurrencies to fund large purchases, and as something of a
status symbol. For example, a luxury auto dealer in Las Vegas
regularly accepts bitcoin as payment for clients buying high-end
sports cars like Bugattis.
While Tesla's move would be high profile, a more substantial
development is expected later this year, when PayPal plans to allow
its customers to use their bitcoin holdings for payments.
"Bitcoin sentiment has already shifted so dramatically over the
last year, but over the last three months that's only accelerated,"
Ms. Demirors said. "From here it only accelerates."
Mr. Musk has past ties to the financial-services industry.
During the 1990s dot-com boom, Mr. Musk and his brother Kimbal
started an internet business called Zip2, which helped newspapers
go online. In 1999, they sold the business to Compaq Computer
Corp., enabling Mr. Musk to walk away with $22 million at age 27.
He spent $1 million on a McLaren F1 supercar and bet the rest on
his next startup, X.com, which became PayPal.
EBay Inc. bought PayPal for $1.4 billion in 2002. As the largest
shareholder, Mr. Musk collected more than $100 million. He was
31.
He used the money to start Tesla and Space Exploration
Technologies Corp., or SpaceX, the rocket company he also runs, as
well as solar-cell company SolarCity, now part of Tesla.
Micah Maidenberg and Paul Vigna contributed to this article.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Rebecca
Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
February 08, 2021 11:51 ET (16:51 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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