By Kris Sayce, editor, Casey Daily Dispatch
As recently as February 8, Tesla revealed it bought $1.5 billion worth of bitcoin.
Bitcoin’s price around that time was $40,000.
Two months later, it traded for more than $64,000.
Soon after, Elon Musk showed his excitement (on Twitter, of course) for Dogecoin, which skyrocketed.
Clearly, Musk’s words (and tweets) move markets.
And in the past two days, both bitcoin and Tesla’s prices have fallen – significantly.
What’s going on?
If this is your first time reading this newsletter, welcome to the Dispatch. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Nick Giambruno, Dave Forest, and the founder of our business, Doug Casey.
Today, we’ll look at Tesla’s decision to stop accepting bitcoin as a payment for its cars… the effect on the bitcoin price… and one expert’s quick reaction…
“Simply Misguided Virtue Signaling”
Tesla says that bitcoin miners use too much energy to mine bitcoin… especially as around two-thirds of all energy generated worldwide is by fossil fuels.
The news caused both bitcoin and Tesla to fall. Time to worry?
Colleague and Crisis Investing chief analyst Nick Giambruno says no. Because:
…this is nothing to be concerned about. It is simply misguided virtue signaling and won’t have any effect on the long-term trend of The Bitcoin Supremacy.
Besides, it’s likely there are other reasons why Tesla has stopped accepting bitcoin. Our bet is that it’s something far less virtuous, and far more mundane.
Without going into too much detail, when Tesla receives cash for its cars, it goes onto the books as cash. There isn’t any further accounting.
But when Tesla receives bitcoin, it treats it differently. It records the cash equivalent for the sale. Then it holds the bitcoin on the balance sheet as an intangible asset.
That’s fine… unless the bitcoin price falls. Then, Tesla has to record it as a loss in value on the books.
Remember, Tesla only managed to eke out a quarterly profit due to carbon credits and selling some of its existing bitcoin holdings. Maybe Tesla’s number crunchers had second thoughts about adding even more of the highly volatile asset to its balance sheet.
But it’s not easy for a company like Tesla to stop accepting bitcoin as a payment option – especially when it made such a fuss about accepting it in the first place.
So it had to find an excuse…
The Bitcoin Supremacy Lives On
Ideally, an excuse that didn’t involve questioning the viability of bitcoin as a payment method. So it turned to the environmental angle.
However, others have pointed out the similar fears in the 1990s. Back then, some folks worried that the internet would increase the use of fossil fuels. In March 1999, a story in Forbes headlined, “Dig more coal – the PCs are coming.”
As recently as September 2019, Fortune ran a story about the environmental impact of cloud computing. It read:
The music video for “Despacito” set an Internet record in April 2018 when it became the first video to hit five billion views on YouTube. In the process, “Despacito” reached a less celebrated milestone: it burned as much energy as 40,000 U.S. homes use in a year.
But is Tesla really so worried about the environmental impact of bitcoin? Has it contacted the companies that make the tires, leather seats, and electrical components for its cars?
How much fossil fuel do they burn?
So the bigger issue is whether it makes any fundamental difference to the story – what Nick Giambruno calls “The Bitcoin Supremacy.”
The short answer is no.
In fact, Nick has done what you would expect from a contrarian investor. He’s told his Crisis Investing subscribers to take advantage of this price hit and buy into a specific investment right now.
He released the research yesterday afternoon (current subscribers can catch up here).
The bottom line is that when any asset gets an upward boost from a big personality like Musk, there are bound to be down days, too. That’s likely what we’ve seen this week.
If Nick is right – and we suspect he is, since his previous calls on this trend include a 2,123% winner in less than three months – now is the time to act before the market turns around once again.
After all, this wouldn’t be the first time that bitcoin (or Tesla) has suffered big drops, only to bounce back and trade higher than ever.
Editor, Casey Daily Dispatch