Cryptocurrency fans are thrilled after a major purchase from Tesla sent Bitcoin prices skyrocketing. But the hype proves that digital money will remain just an investment product, says Kristie Pladson.
Since the cryptocurrency Bitcoin soared in the fall and broke record after record, crypto experts and enthusiasts have said the tide has turned. After years of rolling, the digital currency suddenly only went up. In October, PayPal announced it would accept Bitcoin as a means of payment, and many have concluded that Bitcoin has finally gained the long-term stability and institutional backing it needs to become a widely used currency.
In light of this, what does it mean that a decision by Tesla caused the price to skyrocket by 15 percent? The US electric car maker, headed by Elon Musk, one of the richest people in the world, announced earlier this week that it was investing $ 1.5 billion – 10 percent of Tesla’s cash reserves – in Bitcoin and will also accept purchases with the digital currency in the future.
Still a rocky road
Tesla’s decision marks the company’s largest ever purchase of Bitcoin units. Crypto fans understandably have high hopes for this. But this move also underscores the rocky road ahead for Bitcoin as it tries to transform itself from a punk rock investment tool into the necessarily boring currency it will become as many believe.
Musk’s interest in cryptocurrencies is no secret. He frequently writes about Bitcoin and other digital currencies on Twitter and is popular in the crypto scene. The more important question is why Tesla as a company invests over a billion dollars in Bitcoin, while elsewhere in the company there are so many screeching wheels but no lubricating oil: Tesla’s vehicle production is still lagging behind demand, customers sometimes wait months for their orders . And little has been done to address workers’ complaints about low wages and poor working conditions. Why not use some of the 1.5 billion for this?
One reason for this could be that Tesla’s Bitcoin investment is less about rushing into exciting investments and more about strengthening the core of its own brand.
Musk underpins his reputation
Tesla and Musk have a reputation for being on the cutting edge of technology. This latest move is a smart way to convince people who are already well-disposed to buy a Tesla. Bitcoin fans have their moment in the spotlight (again). Perhaps Musk felt that now was the ideal time to capitalize on her sympathy for him. Tesla’s acceptance of Bitcoin payments will further boost the company’s forward-looking image and attract at least a few self-proclaimed visionaries who will be more than happy to pay for the car of the future in the currency of the future.
But there is also the investment aspect: Musk is aware that the cryptocurrency is sensitive. He knew that if Tesla announced that Bitcoins could be used to buy cars, Bitcoins would likely skyrocket. Now his company is spending $ 1.5 billion on bitcoins. The 15 percent jump in price that followed means that Tesla has already made a quarter of a billion dollars on the project.
A deflation sensation
As exciting as this Tesla-induced rise in Bitcoin price may be, we are seeing the kind of volatility again that bodes ill for the future of Bitcoin as a means of payment.
Constantly rising prices of Bitcoin make an attractive investment instrument. As a means of payment, however, they are rather problematic: deflation! In a report by the Reuters news agency, a Bitcoin enthusiast complains that he regretted using Bitcoins to buy a Tesla in 2016. Back then, the customer paid the equivalent of $ 130,000 in Bitcoin for his vehicle using a Bitcoin payment gateway – a service that allows merchants to process Bitcoin transactions through a middleman. The $ 130,000 he spent on the car would be worth over $ 14 million today. The “novelty” of paying with Bitcoin was only weak compensation to make up for the lost value, he said.
Still not a useful currency
If I could do magic and all of a sudden the whole world was using Bitcoin, we would have massive deflation immediately. Because people would hoard the currency instead of spending it, which drives prices down. It is too good an investment tool to be a useful currency right now. Ironically, the current move by Tesla also exacerbates this problem – at least in the short term