Tesla Invests $1.5 Billion in Bitcoin, Plans to Accept the Cryptocurrency as Payment in the Near Future

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【Summary】Electric vehicle maker Tesla invested $1.5 billion in bitcoin, the cryptocurrency that allows for secure, peer-to-peer instant payments. The company's plan to accept bitcoin as a form of payment is unprecedented in the auto industry. Tesla is expected to start accepting the digital currency in the near future.

Eric Walz    Feb 08, 2021 10:55 AM PT
Tesla Invests $1.5 Billion in Bitcoin, Plans to Accept the Cryptocurrency as Payment in the Near Future

How much will a Tesla Model 3 cost in bitcoin? That's the question potential buyers might consider in the future when purchasing an electric vehicle from the California electric car company. 

On Monday, Tesla invested $1.5 billion in bitcoin, the cryptocurrency that allows for secure, decentralized peer-to-peer instant payments. Tesla is expected to start accepting digital payments in the near future.  

The company, which has become the world's most valuable automaker, has already pioneered new technology in the auto industry, including autonomous driving technology and building fully-electric vehicles that support over-the-air (OTA) software updates. But Tesla's plan to accept bitcoin as a form of payment for one of its electric vehicles or other products is unprecedented in the auto industry.

While there are many forms of cryptocurrency, Bitcoin is by far the world's most popular. 

Tesla's investment in bitcoin resulted in its stock price jumping roughly 10% on Monday, reaching a new record high above $44,000. Tesla's shares are up around 2% to $865.03.

In a securities filing on Monday, Tesla said it made the investment in Bitcoin after updating its company investment policy last month to allow the purchase of digital assets. Tesla also said its revised policies also permit it to invest in gold bullion and gold exchange-traded funds (ETFs).

"We expect to begin accepting Bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis," Tesla said in its filing. However, Tesla warned investors of the volatility of bitcoin's price.

What is Bitcoin?

Bitcoin and other cryptocurrencies are a form of "digital currency" that emerged in 2008. But the funds are transferred without the use of banks, therefore are not subject to fees or other charges financial institutions collect from the movement of money from one party to another. Bitcoins can be traded for goods or services with companies that accept the digital currency as payment.

Each transaction of Bitcoin from one party to another is stored in a distributed ledger called a blockchain that keeps track of all transactions. This distributed and shared ledger offers the highest level of security and eliminates any chance of a data breach. The field of cryptography is the foundation of Bitcoin's enhanced security.

Each time a transaction occurs, the ledger is updated and shared among users, so the transfer of bitcoin ownership is entirely traceable. Anyone with a computer can set up a Bitcoin address to anonymously receive or transfer bitcoins.

Tesla Chief Executive Elon Musk has frequently tweeted his support for Bitcoin in recent months. In December, he posted an image on Twitter that suggested his attraction to the often controversial cryptocurrency.

According to Bloomberg, Musk also inquired about converting "large transactions" of Tesla's balance sheet into Bitcoin in a recent Twitter exchange with Michael Saylor, chief executive officer of MicroStrategy Inc. Saylor is a prominent and outspoken supporter of the digital currency.

In a series of recent  tweets, Saylor encouraged Musk to shift dollars from the electric-car maker to Bitcoin in order to "do your shareholders a $100 billion favor."

Tesla's massive investment in Bitcoin also represents a significant percentage of its cash reserves. The automaker had more than $19 billion in cash and cash equivalents on hand at the end of 2020. The company's market cap is over $820 billion.

Over the past decade, Tesla has been a disruptor of auto industry norms, beginning with its minimalistic, yet high tech battery-powered vehicles that can drive up to 400 miles per charge. The company's investment in bitcoin further cements its position as an auto industry disruptor.

Although Tesla is the first major automaker to build only electric vehicles, it's not the first major company with plans to accept cryptocurrency as a form of payment. 

Microsoft was one of the first companies to accept Bitcoin back in 2014. The software company allows customers in the U.S. to use the digital currency to purchase digital content, including apps and games for its Windows products and its Xbox video game platform.

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