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THE ELON BOOST TO BTC
Read more on - Polity | Economy | Schemes | S&T | Environment
- A boost to BTC: The world's most valuable cryptocurrency Bitcoin (BTC) hit a fresh record above $47,000 on 08-02-201 the moment Elon Musk's Tesla announced a $1.5 billion investment in it. Investors worldwide saw it a stamp of confidence and 'mainstreaming' and poured money into it. Tesla also said it would begin accepting the digital token as a form of payment for its electric cars. That gave people the much-needed confidence in BTC's ability to be a mainstream payment method soon.
- It was Musk magic: Experts say that any other firm or celebrity deciding to put part of their balance sheet in Bitcoin would not have been taken seriously. But when the richest man (Musk) with a proven streak of innovative disruption does it, it's different. It is likely now that, one by one, corporations will add Bitcoin to their balance sheets. So people are imagining if 100 companies start putting even 1% into Bitcoin, the demand and supply would be so mismatched that prices could only rise. There is a finite no. of BTC to be mined (21 million max).
- Digital gold in expansionary times: In an expansionary, monetary environment, you want scarce assets. The scarcest asset in the world is Bitcoin. It’s digital gold. Gold will lose out to Bitcoin in reallocations. If we bought gold instead of Bitcoin, we would be down $2 billion. It would have been a disaster. Once people start thinking about what they want, which is a non-sovereign, safe-haven store of value, they’re going to realize that Bitcoin does the job of gold better, and you’re seeing all of the institutional flows move out of gold into Bitcoin.
- GameStop mania and Tesla's bad news: The January 2021 Gamestop mania (run by investors on a Reddit group WSB) was a wake-up call, but now the capital markets have truly reached dangerous levels. At a market value of about $800 billion, Tesla trades at about 6.5 times the combined value of Ford and General Motors, despite controlling a small fraction of the global auto market. And Tesla lately has been losing market share in Western Europe to competitors including Volkswagen, which has begun to compete aggressively in the electric category. The news of Tesla’s bitcoin investment eclipsed a negative headline for the company about quality issues identified in the important Chinese market.
- Can it all go wrong: While digital assets are relatively new, a tour of financial history suggests similar speculative use of an industrial company’s funds aren’t—and they have ended badly. About a century ago, General Motors required a bailout due to the stock speculation activities of founder William Durant. In the 1980s, widespread corporate speculation on Japanese land prices helped drive a stock bubble that eventually collapsed. Those cautionary tales aren’t likely to concern investors who are enjoying a giant stock-market party. But Tesla’s monetary experiment, coupled with the individual-investor-driven stock-market madness of recent weeks, should have investors concerned that the consequences of staying at the party too late will be worse than leaving early.
- Short term or long term: The crypto craze at the moment seems driven by short-term speculative momentum. Not many are able to explain how BTC will be used in everyday life. But the moment Elon Musk announced his move, the number of users on an Indian crypto exchange ZebPay more than doubled! Offiers there said it was a sign to other companies that bitcoin is a solid reserve asset for any balance sheet.
- India may ban BTC: The government of India had planned to bring a new crypto related legislation in the Budget session 2021, and there were rumours that an outright ban was being contemplated. Exchanges said they hoped central banks would join in the crypto boom, and not ban bitcoin and let every Indian participate in investing in crypto assets.
- Evolving story: The argument for bitcoin is evolving. It used to be negative (reasons to buy), but suddenly there are positive reasons, and that's why you see bitcoin at (new highs). If this becomes a trend in corporate treasuries the downside of staying on the sidelines will only become costlier over time. So many may jump ship right now. Tesla's move to put some of its corporate reserves in bitcoin may be a signal that it expects the cryptocurrency will emerge as another store of long-term value alongside the dollar and gold. Companies are very careful when it comes down to their reserves. This doesn't appear to be a flash in the pan. It appears to be something that may be a fundamental change.
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