Michael D’Angelo, Staff
Pictured above is Tesla CEO, Elon Musk. In late March, Musk announced via Twitter that Tesla cars may be bought with bitcoin and any bitcoin Tesla receives as revenue will not be converted to fiat currency.
All the recent rage in the financial markets is related to cryptocurrency. It appears almost daily one can see a crypto-related news headline. Just two weeks ago a “meme” cryptocurrency known as dogecoin reached an all-time high, netting some traders thousands of dollars. In addition, just yesterday, Tesla announced they sold $272 million worth of bitcoin (BTC) during the first quarter.
Cryptocurrency is defined as an unregulated digital currency that uses an online ledger to track ownership to buy and sell goods. An idea of unregulated digital currency drives the enthusiasm behind crypto and many investors view the currency as digital cash that cannot be traced. The most popular cryptocurrency is Bitcoin. Bitcoin utilizes complex blockchain technology to track ownership and manage trading. Some investors see Bitcoin as a store of value and an alternative to physical gold while others view it solely as currency to buy and sell goods.
Bitcoin has grown tremendously since its inception in 2009 and has experienced widespread interest since last March when the pandemic and stay-at-home orders forced millions into lockdown. Much of Bitcoin’s rise is attributed to retail investors, but institutional investors are involved with the commodity. Big-name financial companies and fintech players like Square and MicroStrategy have used cash to purchase bitcoin. Even asset management fund Fidelity has jumped in and intends to release an ETF to track BTC benchmarks. Bitcoin’s market cap is currently valued at over $1 trillion.
Tesla’s CEO, Elon Musk, has spoken countless times about cryptocurrency and his company’s offer to accept Bitcoin as payment for their cars. In February of 2021, Tesla bought $1.5 billion of Bitcoin. They stated in SEC filings that the purpose of the purchase was to gain a better return on their cash, but they did warn investors of the price volatility involved with the purchase. According to Tesla’s Q1 earnings report, total revenue grew year-over-year by 74 percent. Tesla’s GAAP net income reached $438 million while non-GAAP net income was over $1 billion. Also, Tesla reported more deliveries of their car products. Musk made the Bitcoin purchase to emphasize the liquidity involved with the coin.
As cryptocurrency becomes more widespread, regulators and government officials are left scratching their heads. They must decide how to regulate the crypto market. India had a ban on cryptocurrency which has been reversed in March of this year. Turkey has banned cryptocurrency. Back home in the United States, Bitcoin faces some regulation by organizations like the SEC, the Fed and the CFTC. The IRS taxes Bitcoin and other cryptocurrencies as property. Janet Yellen, the current Treasury Secretary, believes Bitcoin is an “extremely inefficient” way to conduct monetary transactions. Overall, many regulators are going to have to find an agreement and decide how to regulate the coin.
As Bitcoin grows in popularity and many people look to the future, we must be cautious of the recent rapid rise in its price and remember the history of financial booms and busts. Bitcoin and the cryptocurrency market have the potential to fully take over our lives. Bitcoin can be as useful as the American dollar in the next few decades or can be remembered like the tulip bulb of 1637.