Bitcoin's Tesla-driven price rally loses power

While the trading action was calmer, there is still a fierce debate over whether Tesla’s $1.5bn investment in Bitcoin will lead to other companies following suit
Bitcoin's Tesla-driven price rally loses power

Elon Musk's Tesla invested $1.5bn in Bitcoin this week, driving the cryptocurrency's price to a record $48,000. File picture: Britta Pedersen-Pool/Getty Images

The frenzied rally in Bitcoin has lost momentum after prices hit a new all-time high of $48,000, following electric carmaker Tesla investing in the cryptocurrency this week.

The cryptocurrency pulled back, trading up 2.9% at about $46,000. Prices are still up over 30% since the beginning of February.

While the trading action was calmer, there is still a fierce debate over whether Tesla’s $1.5bn investment in Bitcoin will lead to other companies following suit.

While crypto acolytes have been saying for some time that corporate adoption is imminent, in reality it had been limited to firms such as MicroStrategy and Square.

“One by one, corporations will add Bitcoin to their balance sheets and it couldn’t get bigger than Tesla,” said Luno head Vijay Ayyar.

“Imagine if 100 companies start putting even 1% into Bitcoin, what that is going to do to demand and supply.”

While Tesla’s investment makes up about 8% of its most recent cash reserves, it is a drop in the ocean compared to the holdings of America’s blue-chip corporates.

The purchase is worth just 0.05% of the $2.79trn of cash and cash-equivalents held on the balance sheets of S&P-500 members.

For treasurers, the asset class is just too risky, according to James Angel, an associate professor at Georgetown University. There is no compelling business case for Tesla, or any other corporation, to speculate in Bitcoin, he said.

“Corporate cash managers are generally quite conservative and invest corporate cash balances in safe liquid assets,” Mr Angel said. 

Bitcoin is highly volatile and can easily go up or down 10% in a day or 50% in a year — certainly not a good short-term store of value.”

And while Tesla announced plans to accept Bitcoin for purchases, hardly anyone uses the cryptocurrency for anything beyond speculation.

“The crypto craze is entirely driven by short-term speculative momentum/mania,”  Oanda Asia Pacific  senior market analyst Jeffrey Halley said. “For all the noise I keep hearing about how high Bitcoin may go, the noise around how it will be used in everyday life is deafeningly silent.”

Others disagree and insist there is growing interest from the corporate world. MicroStrategy’s CEO Michael Saylor last week hosted a seminar on corporate adoption and said beforehand that professionals from more than 1,400 firms were expected to join.

• Bloomberg

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