Why we’re talking about . . .

Elon Musk and Tesla bet big on bitcoin 

Cryptocurrency’s value hits record high after car firm reveals $1.5bn investment

Elon Musk has put his money where his mouth is after adding the hashtag “#bitcoin” to his Twitter profile just over a week ago.  

The price of the cryptocurrency surged following his apparent endorsement on 29 January. And despite removing the hashtag from his profile a couple of days later, the tycoon has continued to “talk up” bitcoin to his 46.2 million followers, the BBC reports.   

Now, Musk has announced that his electric car firm Tesla pumped $1.5bn (£1.1bn) into the cryptocurrency last month - sending the price of the digital currency soaring to an all-time high. On Tuesday morning, one bitcoin was worth more than $46,400 (£33,700), according to CoinMarketCap.com.  

The latest price hike leaves bitcoin up by almost 50% this year, following gains of more than 300% in 2020.

A ‘game changer’ for bitcoin

In a regulatory filing to the US Securities and Exchange Commission (SEC), Tesla said the decision to invest in bitcoin was part of a broad investment policy aimed at “diversifying and maximising returns on our cash that is not required to maintain adequate operating liquidity”.

Tesla also revealed plans to accept bitcoin as a form of payment - a move that analysts say could prove to be a “game changer” for the cryptocurrency, Sky News reports.

Eric Turner, vice president of market intelligence at cryptocurrency research firm Messari, said: “I think we will see an acceleration of companies looking to allocate to bitcoin now that Tesla has made the first move. 

“One of the largest companies in the world now owns bitcoin, and by extension, every investor that owns Tesla (or even just at S&P 500 fund) has exposure to it as well.”

‘Stick to electric cars’

While soaring bitcoin share prices mean big returns for Tesla, Musk’s enthusiasm for the digital currency also brings “more immediate risks”, of which “one is to Tesla’s reported profitability”, says the FT

Pointing to these risks, The Guardian’s Nils Pratley argues that Tesla should stick to what the firm is good at: “electric cars, energy-storing batteries and so on. Leave punting on bitcoin to the devotees.”

Meanwhile, Bloomberg’s Liam Denning says that Musk’s “preoccupation with crypto has now been taken to its logical conclusion”. 

Denning writes that “having witnessed Gamestonk” - a reference to the recent GameStop trading frenzy drama - “we surely all knew that this Venn diagram eclipse of the most speculative car company in the world and the most speculative ‘currency’ in the world was coming. 

“Tesla sells stock because it can and then uses some of the proceeds to buy Bitcoin because it can. It’s as simple, and disconcerting, as that.” 

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