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StockBeat: Tesla's Foray Into Bitcoin Raises Red Flags, Both Old and New

Published 02/09/2021, 06:20 AM
Updated 02/09/2021, 06:26 AM
© Reuters.

© Reuters.

By Geoffrey Smith 

Investing.com -- Tesla’s move to buy $1.5 billion of Bitcoin ought to raise more red flags in financial markets than a Communist Party rally in Beijing. Instead, it’s fuelling a speculative mania in an asset that is trading more feverishly than ever before on the Greater Fool principle.

If Elon Musk wishes to speculate on Bitcoin, of course he’s perfectly entitled to. Lots of other people are doing the same, so there are plenty of reasons to believe that he can sell his Bitcoin on at a profit in future. 

But there is no need to do it with Tesla (NASDAQ:TSLA) shareholders’ money. If they want to bet on Bitcoin, there is nothing to stop them doing so. However, Tesla investors have bought - albeit at an excruciatingly high price - rights on the future cash flows of a carmaker.

You can argue that there is no inherent conflict there, and it’s true that there may be a substantial overlap between those who believe in Bitcoin and those who believe in Tesla. Certainly, there appears to be a big overlap in mindset, in as much as both are convinced that both will revolutionize and then dominate their respective spheres in future.  

Many Tesla investors will trust any bet that Musk makes, owing to his force of personality. That’s their right, too.  Still, now seems as good a moment as any to remind people that Musk is due to face trial in March on charges of breaching his fiduciary duty when he bailed out his cousins’ failing SolarCity business with $5.6 billion of Tesla’s money back in 2016. Tesla's other directors have already paid $60 million plus legal costs to settle those claims.

What Tesla announced on Monday has nothing to do with making or selling electric cars.  It is simply a bet on a speculative asset whose only intrinsic utility is to make untraceable transactions in illegal goods and services. The claim that the move is a diversification of its corporate treasury assets is a stretch: the aim of diversification is to spread risk, not magnify it (albeit the risk is small relative to Tesla’s balance sheet: the $1.5 billion spent is less than 10% of the cash held by the company at year-end).

But if the claim of diversification is a stretch, the claim that Tesla will accept Bitcoin as payment for its cars is simply eyewash, as neither the customer nor any company would want to set its prices in a currency that can rise or fall by 10% in a day. Tesla's unit of account will remain the dollar for any meaningful timeframe. The fact that Tesla has resorted to such specious arguments should make one instantly suspicious of its real motivation.

It’s hard to shake the suspicion that the main aim of this move is to generate paper profits out of thin air the way that the company has so far done with emissions credits, which are on a long-term downward trend. Both have the effect of masking the reality that the underlying car business can never be profitable enough to justify the business's current valuation (over 1,700 times trailing earnings and 26 times 2020 sales, in case anyone cares).

The leverage that Musk has over financial markets via his fan base makes it risky to bet against Monday’s move, but it is not a healthy sign for markets in general, and for Tesla in particular.

Latest comments

Dont hate on musk, yall did the same thing to bill gates
You must try harder to decrease the significance of move. A move made by a billioner and currently the richest man, if I remember correct. "Paper profits out of thin air" makes me think of USA printing dollars.
1 BTC = 2 model 3
great article
Tesla buying bitcoin is not a speculative bet. Instead, it is a paradigm shift on what the world will focus on as the preferred currency for treasury management. Bitcoin will not suffer from inflation or devaluation as fiat currency is playing out to be. For every market manipulation the fed does, more dollars are printed “in the name of protecting the economy.” The fed is open about its 2% inflation rate policy, which means that people and corporations saving in dollars, suffer from systematic erosion of purchasing power. This is why Tesla is forward-thinking in changing the currency of its treasury.
Bitcoin can be worth 0 if you sleep in too long.
@Jonathan finally a comment worth reading
Do yourself a favor and don’t report on Tesla again
seriously. Ford 11$ but Tesla 800$?  There's nothing in their car that justifies that; especially when you take away the subsidies they get and are losing money on their sales.
if.you.dont.like.it.sell.the.stock.
the article writer sounds quite bitter. sounds like they missed the boat on investing in the future.
lol the person who wrote this article sounds like someone who missed the Bitcoin Bull run!
Do i smell jealousy from Geofferey Smith here? Did Warren from Berkshire not do the same?
bitcoin and tesla..? Tulipes
it's greed amplified to extreme levels even more amplified by the combination of feds printing money and social media. some will make a lot of money, most will lose everything. nothing new. everything is a gigantic bubble. when it bursts those voices " embrace the future " will quickly disappear.
After taking the time to read article and a few comments, I can say it is a typical confrontation between buyers (believers) and sellers (nosayers). Between those who claim know the future (a bit pretensious) because have an asset and a writer that is against (upset for losing the opportunity). There are many conclusions that exist after this event, but one of the best was after some company bought an amount that is minimal to his cash position and literally inexistant for the market, it moved the price 20% and the comments about it to the roof. What would happened if was followed by big real money? What kind of consequences or benefits will bring to all the economy? Just remember that can be regulated, it will, and its future is related with interest rates. Speculate and make money, I will, but don't be believers. That is the real pink dinosaur. Godspeed.
Someone missed bitcoin rally and is very upset. Lol, grow up, buy some btc!
- said every reetard before the bubble pops like it's 2017
well I would enjoy the bubble all the way from 0.1$ to six figure for the past 10 years...so that begs the question whats the definition of bubble
China loves Tesla!
Just open your eyes people. Biggest bubble in this stock since tulip mania. Next up - Masa's vision fund buying Bitcoin
Telsa & musk aplogizers are getting ratio’d. Its refreshing to see the truth boldly stated.
You can’t beat Musk. Join him. Don’t fight the future. The markets and dollar were broken long before Musk. What’s happening now is inevitable. Musk is just the first of many who will follow the new path. Don’t fight the trend. Don’t take the losing side.
If the writer of this article should stick to fiction rather than financial reporting. If he knew anything about accounting and taxes he would see what a great move this was. Tesla wins whether bitcoin goes up or down.
#triggered
Well written ‼️
Wow I hope this guy doesn't actually do financial reporting for a living.  What a complete pile of trash article.  Mr Musks move to diversify assets held by Tesla into crypto is a smart decision.  he is pioneer eventually all companies will have to not want to hold some Crypto as well.  Musk is just one of the first to do so, as it takes a certain level of intelligence that most CEO's lack.  There are zero "red flags"
bitcoin is totally a balloon
No way this ends well for anybody
Proof of stake is a prequisite for a Tesla? Go figure
Rocketfeller of our time! 😷👍
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