Elon Musk sent shock waves through Wall Street on Monday when he confirmed that his company Tesla had bought $1.5 billion bitcoin back in January. Following a series of tweets endorsing the Cryptocurrency, this news caused bitcoin to soar to the price of $44,220, a huge 17% growth, which is a record high.
This news came just days after the entrepreneur caused an instant rise in the value by simply adding #bitcoin to his Twitter profile.
Digital currencies like bitcoin are still very much in a fledgling-state of establishing strong-hold within the payment industry, and like all investments, there is an element of risk. But Musk’s investment speaks to the direction of where the market is potentially leading.
In this blog, we’ll answer your main questions. Why does Musk have such influence in this market? Why is he investing in bitcoin? And … What the heck is Cryptocurrency?
First thing’s first … What’s bitcoin and how does it work?
So, if like me, you’re rather new to understanding bitcoin, let me give you a little introduction into the world of Cryptocurrency.
Bitcoin is the first decentralised Cryptocurrency. Cryptocurrency is a digital asset designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger existing in a form of computerized database to: secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. Bitcoin typically does not exist in physical form and is typically not issued by a central authority like a bank. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.
Since the release of bitcoin, other cryptocurrencies have been created.
Why is Tesla investing in bitcoin?
The main motivation for Tesla investing in bitcoin seems to derive from the company’s intention to begin accepting bitcoin as a form of payment in the future.
Tesla said it “updated its investment policy” in January and now wanted to invest in “reserve assets” such as digital currencies, gold bullion or gold exchange-traded funds. It said it had already bought $1.5bn of Bitcoin and could “acquire and hold digital assets” in the future.
Eric Turner, vice-president of market intelligence at cryptocurrency research firm Messari, believes Tesla’s investment could be a game-changer for the cryptocurrency. “I think we will see an acceleration of companies looking to allocate to Bitcoin now that Tesla has made the first move,” he said. “One of the largest companies in the world now owns Bitcoin and by extension, every investor that owns Tesla, or even just an S&P 500 fund, has exposure to it as well.”
But Neil Wilson, chief market analyst for Markets.com, warned that Bitcoin was a “very volatile” cryptocurrency. “Tesla is now starting to take on big [foreign exchange] risk – this may not worry a lot of investors, but some conservative types might be concerned,” he said.
Central banks remain sceptical of digital currencies. In October, Bank of England governor Andrew Bailey cautioned over Bitcoin’s use as a payment method. “I have to be honest; it is hard to see that Bitcoin has what we tend to call intrinsic value,” he said. “It may have extrinsic value in the sense that people want it.”
What makes Elon Musk so influential?
Elon Musk is a Canadian business tech entrepreneur, the Founder and CEO of Space X, and the CEO of car manufacturer Tesla. As of January 2021, he’s the richest person in the world and one of the most influential entrepreneurs of the 21st century, and with influence and money comes power.
His achievements in tech aren’t the only things that contribute to his influence. He gives off the sense that he is not motivated by financial success, but by the hope that his work will create a better and brighter future for humanity. Musk invested his life savings to create SolarCity – the largest provider of solar panels in the United States, and he took on the car giants of the auto industry to create environmentally sustainable vehicles.
Earlier this month, Musk said he thinks bitcoin is on “the verge” of breaking into traditional finance. “I am a supporter of bitcoin. I think bitcoin is on the verge of getting broad acceptance by conventional finance people,” Musk said during an interview carried out on the invite-only chat app Clubhouse.
I would advise anyone considering buying cryptocurrency to do their research and expect risk. Ultimately, it’s an investment, and like any investment, it carries an element of chance.
As of Thursday 11th February, bitcoin has dropped again from $44,220 to $36.3k. https://www.coindesk.com/ is a great resource for market research.
Tesla’s faith in the currency goes some way in signalling the market direction, and we’ll likely see other large corporates taking a chance with bitcoin over the coming weeks, but these businesses are likely well-accustomed with asset investment and exposure. Many financial experts remain skeptical on its tangible value, and cryptocurrency is yet to become a mainstream trade asset.
I would personally describe Elon’s tweets as a mixture of cryptic messaging, meme references that I’m convinced nobody understands, and a sprinkle of philosophy. Take a look at his Twitter feed and you’ll probably come away with a slight headache, and a big “Wut??”.
Musk influenced a rise in the value of bitcoin with some simple tweets, but his motivations were clearly aligned with Tesla’s very recent investment, and they worked.
Don’t forget you can load and withdraw cryptocurrency from your MuchBetter e-wallet.