Bitcoin rose by a record-breaking 16%, surpassing $44,000, following the disclosure by the U.S. Securities and Exchange Commission (SEC) that Tesla invested $1.5 billion in the cryptocurrency. Following the announcement Tesla’s stock likewise rose 16%. The automaker made the investment in Bitcoin in January and announced that it would begin accepting the cryptocurrency as a form of payments.
Following the announcement of Tesla’s purchase of the cryptocurrency, the electric car maker’s stock also rose by 2%
In a report sent to the SEC, Tesla stated that the purchase points to a strategy to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.”
Tesla’s Bitcoin purchase is the largest acquisition ever made by a public company. This purchase comes on the heels of the crypto resurgence in 2020 where the price of cryptocurrency quadrupled.
Tesla says it considers its purchase of bitcoin as a “long-term investment” of an intangible asset but warned that the purchase of the cryptocurrency could make its financial reporting figures more volatile due to the high price fluctuation of the cryptocurrency.
Tesla is not the first publicly traded company to invest in bitcoin, with analytics firm MicroStrategy being the first to dabble in the cryptocurrency. By December 4, 2020 MicroStrategy had 40,284 units of the cryptocurrency in its portfolio. The company plans to raise another $400 million through the issuance of bonds to acquire more of the crypto.
MicroStrategy’s manager explained to CoinDesk that he made the decision to venture into bitcoins after realizing that the company’s cash savings of $500 million were losing value due to the federal pandemic stimulus.
Bitcoin became an investment asset in public companies and investment funds
The optimistic attitude towards the price of bitcoin already seems to be contagious not only to the automaker and technology investors, but also to investment funds such as Massachusetts Mutual Life Insurance Co. which made a purchase equivalent to $100 million in bitcoin.
Another investment fund, Ruffer, bought more than 550 million pounds in bitcoin, representing about 2.7% of the fund’s assets. According to Ruffer, it added bitcoins to its Multi-Strategy Fund primarily as a defensive move against the “ongoing devaluation” of fiat money.
It is estimated that if pension funds and insurance companies in the United States, the euro zone, the United Kingdom and Japan invested 1% of their assets in bitcoin, there would be an additional $600 billion demand for the currency.
In August 2020, bitcoin surpassed the market capitalization of Bank of America, one of the largest banks in the United States, showing that the cryptocurrency is no longer a speculative asset.
In the last 10 years, bitcoin has outperformed the most bought stocks such as Google/Alphabet, Apple or Amazon, with annualized returns of over 200%. According to Bank of America’s latest survey of mutual fund managers, investing long (buying an asset by betting that its price will rise) in bitcoin has become the third-most common type of transaction in the market.
Despite optimistic market projections, there is still skepticism surrounding the cryptocurrency, as it remains a highly volatile asset and some analysts see signs of a bubble.
The valuation of cryptocurrencies, in part, responds to the devaluation of fiat money caused by the massive issuance of central banks to contain the pandemic. Thus, the integration of bitcoin into the portfolios of public companies and investment funds is a sign that the cryptocurrency will continue to exist and circulate in the market for a long time to come.