Corporate Finance News

Lundi 8 Février 2021

Bitcoin surges on Tesla filing - Comment

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Bitcoin shot to a record high, clearing $43,000 after Tesla reported in an SEC filing that it has bought $1.5bn worth of the cryptocurrency and said it would begin accepting Bitcoin as a form of payment in the future. This is the kind of backing that can take Bitcoin through $50k.

Once again it highlights the power that Elon Musk has in shaping price action and moving markets. He’s now putting his money (shareholders’) where his mouth is. But given his recent comments – and adding #Bitcoin to his Twitter bio on January 29th – it also raises a real question about possible market manipulation. Musk’s tweeting record is chequered to say the least (‘funding secured’) and he has had his knuckles rapped by the SEC in the past. The filing simply says that the investment policy was updated in January 2021 and ‘thereafter’ the company invested an aggregate $1.5bn in Bitcoin. Timing would appear critical. Tesla also says it may acquire and hold other digital assets. The move will also raise questions for fund managers who may not want to invest in a company with this kind of risk on its balance sheet – we know Bitcoin is very volatile – this is normal FX risk x100. Tesla is now starting to take on big FX risk – this may not worry a lot of investors, but some conservative types might be concerned.

Rumours have clearly been doing the rounds that Musk was in Bitcoin. After the Twitter update on Jan 29th, I noted that the move was cheered by the Bitcoin bulls and it indicated support for the crypto in some form, but it was not clear at that stage if he and/or Tesla was buying in size. Now we know not only is Musk on side, but Tesla is backing on a corporate level – the strategy was approved by the Board and Audit Committee. This comes after moves by PayPal and Square, as well as MicroStrategy, which have pointed to rising corporate support for Bitcoin. Last year PayPal sparked a big rally in Bitcoin after it said it would allow users to buy, sell and hold cryptocurrencies on its platform. Before this, Square added $50m in Bitcoin – some 4,709 coins – to its balance sheet, whilst Microstrategy, a Nasdaq-listed business intelligence company, acquired 21,454 Bitcoins as part of its "capital allocation strategy". Tesla’s move is the kind of big corporate support that bulls are latching on to. More corporate support = more mainstreaming.

Neil Wilson | Chief Market Analyst for
Level 11 Broadgate Tower, 20 Primrose St, London, EC2A 2EW

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