Tesla Inc’s groundbreaking announcement that it will allow customers to pay for their electric vehicles with bitcoin soon not only opened the door to the cryptocurrency’s real world use but also sent its value soaring to new highs.
Bitcoin was fast approaching the $50,000 mark on Tuesday after Elon Musk-led Tesla's $1.5 billion investment in the cryptocurrency had investors reckoning it may become a mainstream asset class for both corporations and money managers.
The most popular cryptocurrency has gained 1,150% from its March 2020 lows after trading at just a few hundred dollars only five years back.
On Monday alone, it leapt 20% after Tesla’s announcement – that was its largest daily rise in more than three years. The price of one bitcoin climbed to a peak of $48,216 – almost enough to buy one of the best-selling Tesla vehicles. Rival cryptocurrency ethereum struck a record high of $1,784.85 on Tuesday.
But with bitcoin's value tripling in the past three months, analysts raised questions over how its volatility would affect someone buying a Tesla car in bitcoin.
A handful of mainstream brands have allowed customers to make purchases with bitcoin through third-party processors, but Tesla now suggesting it might accept bitcoin directly is a game-changer.
The company made the disclosures in a section of its quarterly securities filing that also detailed its purchase of $1.5 billion worth of bitcoin. If customers buy Teslas with bitcoin, the company may or may not liquidate those payments right away – which some have read as an indication that Tesla might hold on to at least some of the coins and not sell them automatically.
If Tesla were to accept bitcoin payments the way some other major companies have, customers would transfer bitcoins from their "digital wallets" to another entity that converts them into, say, dollars and sends the sum to Tesla.
For example, companies including AT&T Inc and Microsoft Corp have accepted bitcoin through BitPay, a cryptocurrency payment processor. BitPay has facilitated payments for luxury auto dealers but is not working with Tesla now, a representative said.
One digital currency enthusiast, Mason Borda, said he bought a Tesla Model 3 in 2016 using bitcoin through a company called Shakepay. It allowed him to load up a one-time-use credit card with his bitcoin. Tesla received a cash payment.
Borda, chief executive of cryptocurrency software company TokenSoft, said though he regrets the purchase, because of how bitcoin values have soared. When Borda bought the car, each bitcoin was worth about $400. As of Monday, however, it was worth over $44,000. That means the $130,000 spent on the vehicle would be worth more than $14 million in bitcoin today.
'NOVELTY CAN FADE'
"I recommend against purchasing big-ticket items with Bitcoin," he said. The "novelty" of doing so can quickly fade if the price rises dramatically.”
And Marija Vertimane, senior strategist at State Street Global Markets, said: "From a practical point of view, using bitcoin to buy anything – like a Tesla car – would be still extremely difficult given its excessive volatility.”
Tesla may eliminate the middle man and create its own processing system that can be used to accept bitcoin and liquidate the payments whenever management chooses to, experts said. That would be an unusual step, because bitcoin is so volatile.
If Tesla goes that route, customers would transfer bitcoin into the automaker's own system. The company will probably have to set a guaranteed exchange rate with customers for a very short period of time though, said CoinShares Chairman Danny Masters.
"They will likely continue to price Teslas in dollars and then say, 'Wire us dollars or send us bitcoin and if you send us bitcoin, the price is good for five minutes,’ " he said.
- Reporting by Reuters