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Stock Market Tesla’s big bitcoin buy won’t worry the SEC, experts say, and could legitimize crypto as a diversification strategy


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Stock Market Tesla’s big bitcoin buy won’t worry the SEC, experts say, and could legitimize crypto as a diversification strategy

Elon Musk is a fan of crypto. Britta Pedersen-Pool/Getty Images This story is available exclusively to Insider subscribers. Become an Insider and start reading now. Tesla has bought $1.5 billion worth of bitcoin. The move has raised questions about bitcoin and crypto regulation. Experts told Insider that the move makes sense and that the SEC…

Stock Market Tesla’s big bitcoin buy won’t worry the SEC, experts say, and could legitimize crypto as a diversification strategy

Stock Market

Stock Market Elon Musk

Elon Musk is a fan of crypto.

Britta Pedersen-Pool/Getty Images


This story is available exclusively to Insider subscribers.
Become an Insider and start reading now.

Bitcoin, the world’s most famous cryptocurrency, didn’t need any help from Tesla or CEO Elon Musk. A year ago, a single bitcoin was worth about $7,000 — now one is valued at almost $48,000.

But when Tesla revealed last week that it had acquired $1.5 billion bitcoin, it took the shadowy digital asset to a new level of both respectability and notoriety.

Musk has been outspoken in his support for digital currencies, which have proliferated in the past five years. Along with adding bitcoin to the balance sheet, the carmaker said it could accept bitcoin as payment for its vehicles.

Tesla’s stock price has been on a tear, minting a market capitalization of well over $800 billion, so the embrace of bitcoin meant that two entities with surging valuations and aspirations to shake up the worlds of transportation and banking were joining forces. After news of Tesla’s position broke, shares rose and the price of bitcoin spiked nearly 16% at one point.

For bitcoin boosters, Tesla’s decision ratified the validity of the cryptocurrency. An S&P 500 company was saying that it needed to hold a significant amount of the digital asset, invented in 2008 by a mysterious individual, or perhaps a hacker collective, known as “Satoshi Nakamoto” and “mined” using networked computers. The total amount of bitcoins that can ever be created is 21 million, and that scarcity has some major-league financial professionals taking something that lived in an eccentric corner of the internet and turning it into the almighty dollar’s worst nightmare.

Bitcoin has consequently been labeled cyberpunk gold, but despite the buzz around its price, it’s difficult to buy anything with it. Instead, bitcoin has been used as a means to evade government oversight of transactions and currency movements, given it a roguish reputation for drug purchases, money laundering, and capital flight.

However, plenty of above-board financial players think crypto and the digital-ledger systems that underpin the currencies could someday be useful, perhaps as a low- or no-cost way to execute transactions in dollars or euros. 

Stock Market Regulatory alarm bells?

Meanwhile, Tesla’s move raised the question of whether government regulators might have a problem with the purchase. But several experts told Insider that the Securities and Exchange Commission is unlikely to worry about Tesla’s bitcoin holdings — a contrast with the agency investigation of Musk’s 2018 attempt to take Tesla private, inviting a fraud probe and subsequent $40 million fine, as well as compelling Musk to give up his role as Tesla’s board chairman.

“The SEC is a regulator of information,” Ashley Ebersole, a former SEC lawyer, told Insider. “In the end, as long as this was disclosed properly and there was no manipulation of markets, then I don’t know that the SEC would have much to say about it.”

“The SEC obviously doesn’t regulate bitcoin directly,” he added.

Ebersole, now at the Washington firm Bryan Cave Leighton Paisner, did say that the SEC might scrutinize the comments that Tesla and Musk make about the company’s bitcoin position.

“It’s interesting to think about a company’s statements about an asset that forms a not insignificant position on the balance sheet. That’s something the SEC might care about.”

Stock Market Bitcoin as marketing

Tesla has around $19 billion in cash on hand, but given crypto’s ascent, David Yermack, the chair of New York University’s Stern School of Business, said it made a certain amount of sense for Tesla to obtain some bitcoin.

“I wouldn’t rule out the need for working capital,” he told Insider. “You need to have some bitcoin in the cash register drawer.”

But he added that the position is “fundamentally about marketing.”

“Many of the people who would buy crypto would also buy a Tesla,” he said. “The symbolic alliance with crypto drives sales of vehicles.”

Yermack also noted that cryptocurrencies might have shaken off some of their Wild West reputations. 

“There’s an argument to be made that crypto should be part of cash and marketable securities, as part of the diversification strategy,” he said, referring to the accounting category that appears on a corporation’s balance sheet.

The immense stress on central banks and the global money supply, intensified by the COVID-19 pandemic in the aftermath of the 2009 financial crisis, has compelled firms to seek out ways to protect their holdings.

“Anyone who is worried about the long-term safety of central banks is more worried now than they’ve ever been,” he said.

Stock Market Telling a crypto story

David Kirsch, a professor at the University of Maryland Robert H. Smith School for Business, echoed Yermack’s view on the marketing potential of Tesla’s choice.

“To me, it feels a little bit like coming up with a new story,” he told Insider. “You don’t have to buy bitcoin to accept it for payment.”

He also said that he saw some connections between Tesla’s move and the recent battle over the stock price of GameStop, a struggling retailer whose shares were run up by a trading community on Reddit, forcing some Wall Street hedge funds that had shorted the stock to cover their positions.

Kirsch expressed concern that Tesla was jumping into bitcoin soon after being included in the S&P 500 index, putting Tesla’s shares into the retirement portfolios of everyday investors with retirement funds.

“The risk is multiplied,” he said. “It’s not necessarily a legal concern, but it goes to trust in markets and stability.”

But a consensus does appear to have developed around Tesla’s bitcoin play.

“This legitimizes bitcoin for others,” Kirsch said. “And it brings bitcoin into the mainstream.”

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