Tesla has invested around $1.5 billion in Bitcoin and said it plans to begin accepting the digital currency as payment for its high-end vehicles soon.
The California-based electric car maker headed by Elon Musk revealed the new strategy in a filing with the U.S. Securities and Exchange Commission, saying its investment in digital currency and other “alternative reserve assets” may grow.
The world’s richest person has long been a cryptocurrency supporter.
Just last Thursday Musk sent Bitcoin alternative Dogecoin to the stratosphere when he tweeted an illustration of himself thrusting its canine mascot to the sky.
After the announcement, Bitcoin rose to $43,863 and briefly hit a new all-time high, while shares of Tesla moved higher as well.
Dan Ives of Wedbush Securities said the move gives Tesla “more flexibility to further diversify and maximize returns on its cash.”
Critics say Tesla’s sales and profits are puny compared with established automakers such as Toyota and General Motors, and its huge valuation is not justified by financial fundamentals.
Similar to Tesla, Virginia-based MicroStrategy Inc. announced in August that it would use some of the excess cash on its balance sheet to invest in alternative assets such as bitcoin.
The move has paid off so far.
As of Feb. 2, the business analytics company said it held 71,079 bitcoins that it purchased for an aggregate price of $1.15 billion since last summer.
Using the current value of $43,000, those bitcoins are worth $3.06 billion.
The support is giving Bitcoin a stamp of legitimacy that its early adopters have been craving.
Crypto has for long been derided as a made-up asset with no innate value, and it has perhaps most famously been used to buy pornography and drugs on the darker corners of the internet.
It’s been a wild ride for Bitcoin since it made its Wall Street debut in December 2017.
Major futures exchanges rolled out bitcoin futures, pushing it to roughly $19,300, a then-unheard of price for the currency.
It evaporated quickly in 2018, and by December of that year Bitcoin was worth less than $4,000 a coin.
More recently bitcoin rallied from below $11,000 in October and crossed $40,000 for the first time in its history.
Musk and Tesla will certainly attract a lot of headlines for the move.
Bitcoin has made huge strides in the last six months toward winning mainstream acceptance, with PayPal Holdings Inc., Visa Inc. and MasterCard Inc. each starting to accept the cryptocurrency from their accountholders.
It’s another matter, however, whether consumers beyond crypto fans will truly embrace assets that can lose 10% of their value in a day in lieu of the U.S. dollar or other “fiat currencies.”
While in the last two years companies have embraced the technology that underlies digital currencies like Bitcoin, a concept known as the blockchain, the actual uses for Bitcoin have not really changed since its rally three years ago.
It’s still largely used by those distrustful of the banking system, criminals seeking to launder money, and for the most part, as a store of value.