Tesla Inc.’s $1.5 billion splash on Bitcoin and its plan to accept the digital currency as payment is shooting crypto prices to record highs Monday. But fans have a question for Elon Musk: What took him so long?
The world’s richest person and Tesla chief has long been a cryptocurrency supporter. Just last Thursday he sent Bitcoin alternative Dogecoin to the stratosphere when he tweeted an illustration of himself thrusting its canine mascot to the sky.
But Tesla’s latest announcement represents more than just another endorsement. It’s 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.
Many users in San Francisco and other tech hubs gave up spending it on pizzas and lattes — in the few places where it was accepted — after it became too impractical to use. Now, thanks to Musk, the moment when it truly could become an alternative form of legal tender may be here.
“I’m surprised it took him so much time to do this,” said Eleesa Dadiani, a London-based entrepreneur and crypto broker who specializes in helping wealthy clients convert digital currencies into luxury assets. “He has the power to influence markets, and this man is the key to crypto going mainstream. But there are a lot moving parts to coordinate. I wonder whether this will just be a marketing thing.”
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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.”
Dadiani, who arranged the exchange of about 5 million pounds ($6.8 million) worth of Litecoin for four Formula One cars in 2017, says the mechanics of converting Bitcoin into a $58,000 Tesla Model 3 may be far more trouble than people think. For starters, the company and the customer will have to agree on an exchange price for one of the most volatile assets in the world. That means trading firms and other market participants have to get involved. Tesla and customers may even have to consider using complex, ultra-risky cryptocurrency derivative contracts to hedge market swings.
Tesla pointed out these risks in Monday’s filing where it revealed its $1.5 billion Bitcoin investment. “The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties,” the company said. “For example, the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable.”
On Monday, Bitcoin soared as much as 16%, to almost $45,000, just on the news of Tesla had embraced the cryptocurrency. But that’s no guarantee the price will keep rising. Less than three weeks ago, on Jan. 21, it tumbled more than 10% to $31,217 after having breached $40,000 earlier in the month.