Tesla Buys $1.5 Billion worth of Bitcoin as Reserve Asset to Diversify & Maximize Returns on Cash
It really was inevitable, after all! Volatility permeates the market as Elon Musks’ electric vehicle company announces they may further add digital assets as part of its updated policy. They will also start accepting BTC as a form of payment in near future.
Elon Musk's Tesla did what the Crypto Twitter (CT) has been speculating the electric car company to do when the Bitcoin proponent Musk changed his bio to “bitcoin.”
On Monday, the company announced that it had bought $1.5 billion worth of Bitcoin, and it sent the volatility in the market through the roof, with the BTC price breaking into a new all-time high above $44,240.
Interestingly, this is not a one-time thing, and the company may acquire and hold digital assets from time to time.
According to the company’s US Securities and Exchange Commission (SEC) filing, Tesla
“hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.”
The Bitcoin purchase has been made as per the company’s investment policy update in Jan. 2021 to provide the company with
“more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.”
As part of the updated policy, Tesla may invest a portion of its cash in alternative reserve assets, including digital assets, gold bullion, gold exchange-traded funds, and other assets.
Besides buying the leading digital currency, the company will also accept BTC as a form of payment in the near future.
Pointing to the risks associated with digital assets, the company lays out their highly volatile nature, being a relatively recent trend, their reliance on technology, making them subject to the threat of malicious attacks and tech obsolescence, and lack of regulatory clarity.
However, in its SEC filing Tesla notes that the company is exposed to fluctuation in currency rates as well.
Given that the company transacts business globally in multiple currencies, “any strengthening of the U.S. dollar would tend to reduce our revenues as measured in U.S. dollars, as we have historically experienced.” As for the value of the U.S. dollar depreciating significantly against foreign currencies, their margins suffer.