Is Tesla’s Bitcoin Gambit Genius or Insanity?

March 9, 2021 5 min read

The opinions expressed by the entrepreneur’s contributors are their own.

Over a month ago, Tesla announced it had bought $ 1.5 billion worth of Bitcoin, which is 10% of the company’s cash reserve. In the same breath, the only electric car manufacturer named after a Serbian-American futurist announced that it would accept Bitcoin as a means of payment for these cars. The (already) largest cryptocurrency in the world immediately rose from USD 4,000 to USD 43,000 and rose to USD 50,000 the following week. Now that I have your attention, let’s deconstruct …

Related: Tesla is phase one of the EV investment cycle. What’s in phase two?

The maestro of the Twitter hype

When one of the richest men in the world isn’t busy building the next billion dollar business, he loves to share his thoughts and ironic comments on Twitter. It’s almost scary to see the impact 140 characters have when moving an asset worth nearly $ 1 trillion.

Elon Musk will at some point have to take a step back in order to hyped Bitcoin on the social media platform as this could be viewed as market manipulation even if the legislation in this area is ambiguous. Legal advisers have already warned of possible actions by the SEC.

“Given the focus on the chief executive’s tweets, bitcoin pricing, and recent dramatic market moves, it wouldn’t be surprising for the SEC to ask questions about the facts and circumstances here,” said Doug Davidson, ex-chief of the SEC of enforcement to the telegraph.

The mainstream media quickly flocked to criticize this purchase, arguing that Tesla was putting its shareholders at risk by exposing them to Bitcoin’s volatility through their equity without actively consulting them on the matter. However, when this game pays off for Musk, doubters will find it harder to hear their complaints. But will it pay off?

Related: Elon Musk replies that “it would be great” if he was investigated for his Dogecoin memes

Reflexivity is Tesla’s secret weapon

When you think of Tesla, do you think of a giant scam or the future of the automobile?

That is the question that author Matti recently asked in a Deribit Insights. Tesla’s market capitalization is currently around $ 768 billion, ten times that of General Motors. In 2020, Tesla delivered 500,000 cars to customers – an impressive number, but nothing compared to the 6,830,000 General Motors launched.

While Musk’s market capitalization dominates General Motors, Tesla is not selling you a stake in the current company, but rather a stake in the future. They managed to convince investors that they represent the future of the automotive industry through brilliant marketing, working electric vehicles and the little-known investment concept of reflexivity.

Elon Musk’s tweets often look like a drunken teenager’s gossip, but despite or perhaps because of that, his businesses thrive on the stock market. He represents a new generation that doesn’t wear ties, doesn’t want to follow the rules and is only there to disturb. Investors keep rewarding him for it.

The market is becoming increasingly liquid as retail investors have finally arrived to claim their seat at the table and are becoming a force to be reckoned with, as demonstrated during the GameStop Short Squeeze. In this Deribit Insights article, Matti wrote, “When it comes to markets, soft money seems to exacerbate the effects of reflexivity. In a very reflective environment, things are valued not for what they are, but for how good their memes are. “

Reflexivity is the effect when an investor sees that a fellow investor wants something, be it Tesla stock, Bitcoin or a Rolex. This signals to him that the property or stock is worth wanting, which reinforces the first investor’s desire for the same thing.

See also: “Big Short” investor Michael Burry predicts that Tesla stock will collapse like the housing bubble: “Enjoy it while it lasts”

Bitcoin is the ultimate object of reflexivity

Tesla’s investment in Bitcoin constitutes the ultimate power couple. It is the most suitable good for a reflective circle. Its value as a payment network has not been the driving force behind its development in recent years, but the exponential reflexivity ratio between investors who can buy Bitcoin has only increased, bringing the price to levels previously only dreamed of.

For the specialists who reap reflexivity, investing in Bitcoin is a heavenly game. With Tesla signaling to every other company in America that Bitcoin is a desirable asset on their balance sheets, they can be assured that the cryptocurrency will remain a desirable asset.

This game is not a game. About any other company besides Elon Musk? However, buying Bitcoin guarantees that the price will rise in the coming months.

Related topics: Bitcoin climbs 16% to a record high after Tesla says it invested $ 1.5 billion in the cryptocurrency and will start accepting it as payment

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