Tesla made headlines yesterday as it announced that it invested $1.5 billion in Bitcoin during the course of January. The news sent Tesla’s shares higher and Bitcoin even higher. The cryptocurrency broke decisively above the $40k level and currently flirts with $50k.
For Tesla fans and investors, the news was shocking, but not so surprising if one follows the CEO, Elon Musk, tweets. He has a solid follower base of over 46 million people, and he recently added Bitcoin to its Twitter profile. The move alone created waves in the financial community in the last couple of weeks, so yesterday’s news comes to confirm the suspicions.
What does it mean for Bitcoin and Tesla investors, the recently announced investment?
A Few Things to Consider on Tesla’s Bitcoin Investment
Tesla announced an investment of a billion and a half in Bitcoin for the month of January and, also, that it will likely accept Bitcoin as payment for cars at some point in the future. A couple of things are worth mentioning here. First, Tesla has only recently become profitable, and that is not due to its car manufacturing and selling, but due to the carbon credits it sells to other auto-manufacturers. Second, Tesla’s cash position is not as strong as many believe, and some voices argue that Tesla is gambling its financial strength by investing its treasury in speculative assets.
These are the cons or the negatives of yesterday’s announcement. However, in hindsight, Tesla already made a couple of hundred million dollars in profit. If it acquired Bitcoin in January, say, at a price around and below $40k, the $1.5 billion investment gave it approximately 37,500 Bitcoin. After yesterday’s announcement, Bitcoin is up to 46k. Therefore, the return on investment in less than a month’s time is staggering – a little above $200 million.
Of course, this is still speculation, and long-term, traditional investors in Tesla’s share cannot be happy with the decision to invest in an asset that is known for its huge volatility. Yet, Musk’s fan base is made up of millennials that value cryptocurrencies as they consider them the start of a new financial system.
If Tesla’s move was wise or not, remains to be seen. Perhaps the company already booked some profits from its January investment?