We look at the impact and rationale behind the automaker’s decision to buy more than $1 billion worth of Bitcoin.
Tesla’s bitcoin purchases triggers ‘buying overload’
Despite that, news that the automaker had been snapping up the mainstay cryptocurrency at a rapid click in January 2021, saw the Tesla share price creep higher on Monday, 8 February, while itself broke Bitcoin fresh highs off the back of this news.
At the time of writing Bitcoin traded at US$47,550 per coin, up more than 20% in the last 24-hours alone, as hype around the future of cryptocurrencies reaches fever pitch.
Indeed, news that Tesla (TSLA) now had $1.5 billion worth of the crypto on its balance sheet whipped retail traders into a buying frenzy, with various crypto exchanges reporting service issues as a result of this ‘buying overload.’
Where next for the automaker?
Following approval from the Audit Committee of Tesla’s Board of Directors in January 2021, Tesla said it had updated its investment policy as a means of diversifying and maximising the returns from the cash held on its balance sheet.
By the close of CY20, Tesla said it had $19.38 billion of cash and cash equivalents on its balance sheet.
So what does this updated investment policy entail? A few key things.
For one, the company said it would now be able to:
‘Invest a portion of [its cash reserves] in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future.’
It was under this updated policy that the company said it had made the $1.5 billion crypto purchase, assumedly with the intention to ‘further diversify and maximize returns’ on the company’s cash balance. Beyond those initial purchases, and what likely contributed more broadly to the excitement felt by the crypto market in the last 24-hours, Tesla made two further important points, saying it;
‘May acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.’
While Bitcoin rallied strongly off the back of this news, the Tesla share price was more subdued, finishing out Monday’s session up $1.31% at $863.42.
For reference, this announcement was made via Tesla’s just-released 2020 annual report, where the company provided audited financial data for the year ending 30 December. Here, much of what the market already knew was restated, with Tesla reporting 2020 total revenues of $31,536 million, gross profits of $6,630 million, and net income of $862 million.
Expectations around the automaker remain elevated, with TSLA last trading on a 1,365X earnings multiple.
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