Tesla bought $1.5 billion of Bitcoin. What are the implications for crypto?
There are a few things that need to be solved before Tesla can accept Bitcoin as a legitimate method of payment, says UNSW Business School's Mark Humphery-Jenner
Tesla has purchased $1.5 billion worth of Bitcoin. Now, this obviously had some positive impacts on the market. Bitcoin increased immediately around 16 or so per cent on this purchase, showing the market responded quite positively, at least in terms of Bitcoin.
Tesla's share price, however, didn't see quite the same increase. Tesla's share price kind of muddled along in a positive manner, but certainly not 16 per cent – which is relatively unsurprising as it's a large corporation and not inherently tied to Bitcoin. But still it tells you the market is kind of lukewarm about this decision.
Now part of the reason for this could be some barriers towards using Bitcoin long-term as an actual way to buy and sell cars. But also, part of it could be due to the sheer amount of information that is either positive or negative about Bitcoin.
So we've seen central banks can say, 'Well, people investing in Bitcoin could lose all their money.' Now, some people are saying, well, 'they're doomsayers, and they don't really know what they're talking about in relation to Bitcoin.' They don't understand that Bitcoin is potentially a very finite resource, and there's only so much supply of Bitcoin and it increases at such a rate.
Read more: What Tesla’s $1.5 billion bet on Bitcoin means for crypto legitimacy
And therefore it is rare and therefore, much like gold, it should have value. So that's what effectively some people are saying to counter those central banks. However, Bitcoin is notoriously incredibly volatile. Bitcoin is not really working as a store of value, or a proper hedge in much the same way as gold does.
So we really can't treat this as being an equivalent to gold, and we really can't treat it as being necessarily a safe investment. And there are some broader implications about whether really want a corporation speculating about any asset, be it Bitcoin, be it a commodity or whatever – any asset that is not core to their underlying operations.
For more information, please contact Mark Humphery-Jenner, Associate Professor in the School of Banking & Finance at UNSW Business School.