Why Elon Musk Cashed In $1.5 Billion to Buy Bitcoin
Bitcoin hits a new high... Why Elon Musk cashed in $1.5 billion to buy bitcoin... Musk's 'asymmetric' bitcoin bet... The start of a corporate buying trend... Bitcoin is a bigger winner than Tesla... Video: The thing about bitcoin's volatility... Eric Wade on the opportunity in cryptos...
Even for bitcoin, this morning's move was unprecedented...
In just 30 minutes, the price of the world's most popular cryptocurrency spiked roughly $4,000 – or more than 10%.
If you follow along regularly here in the Digest, you may know that I (Corey McLaughlin) believe linking any asset's price moves with a single news item is often a stretch...
But sometimes, the story is simple and direct.
And based on the timing alone – much less the news behind it – the reason for this morning's big jump in the price of bitcoin was pretty clear. As Stansberry NewsWire analyst Nick Koziol summed it up earlier today...
Tesla (TSLA) has become the latest company to add bitcoin to its balance sheet...
In [a U.S. Securities and Exchange ("SEC")] filing this morning, the electric-vehicle maker said it had adjusted its investment policy to give the company more flexibility and maximize its returns. As a result, the company said it had invested $1.5 billion in bitcoin.
This news has sent bitcoin soaring this morning...
Our first reaction was, 'Of course Tesla is making a move into owning and using bitcoin'...
As we've written before, Tesla CEO Elon Musk has done everything against the grain for a long time.
And while our past opinions about the company and Musk are well-documented, he has done things for better (like advancing innovation)... and worse (like the company's balance sheet).
Buying $1.5 billion of an "alternative reserve asset" – as the SEC filing described bitcoin – that many folks don't understand or have yet to trust is within Musk's character... and reputation as a brash CEO who many new, younger investors believe can do no wrong.
We'll get into some of the details about why buying bitcoin does make sense for investors, or business leaders like Musk, in today's Digest. But that's just the start of this story...
Then, we saw the price movement...
At around 8 a.m. Eastern time this morning, bitcoin was up roughly 12% from 24 hours earlier. It soared to nearly $44,000, a new all-time high.
This surge happened simply because one company (Tesla) disclosed in its annual 10-K filing with the SEC that it had bought a lot of bitcoin...
Last month.
Yes, you read that right... Tesla didn't buy $1.5 billion of bitcoin today and push the price up itself. No, the company bought sometime last month.
Today's price spike happened from everyone else already following the bitcoin story reacting to the news that Tesla got in on the game several weeks ago.
We could say a lot about this whole idea in today's Digest. But reading between the lines on page 106 of Tesla's otherwise largely mind-numbing SEC filing – which became public this morning – we want to start there...
We now know that Tesla and Musk are on board with the idea of the 'anti-central bank' trade...
We just described this last month in the January 4 Digest.
In the SEC filing, Tesla specifically says the investment in bitcoin was made to "further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity."
In a similar line of thought, Tesla also disclosed that it may make further investments in "alternative reserve assets" – like digital assets, physical gold, and gold exchange-traded funds ("ETFs") – as it sees fit.
In other words, Tesla is looking to make the most of the savings it holds in U.S. dollars – by owning less of them... That makes perfect sense if you've followed our work at Stansberry Research for any length of time and understand the ongoing devaluation of the dollar.
That's the philosophical demand part of the bitcoin story. Moreover, the practical demand part of this story is in play, too – the technology side... Tesla said that it plans to accept cryptocurrency payments in the future.
And we've reported recently that even the U.S. Treasury has cleared the way for banks to use cryptocurrencies – to transfer money using the underlying blockchain technology – and not get in trouble for it.
Over the past year or so, we've described why we believe everyone should own at least some bitcoin...
Be sure to read this DailyWealth essay from our Director of Research Austin Root to get started on the reasons why... or check out the work of Crypto Capital editor Eric Wade for some of the more intricate details.
If you're interested in learning more about cryptos – and getting involved in this still-emerging space – I can't give you better advice than to consider subscribing to Eric's service. In Crypto Capital, he covers everything from how to buy your first bitcoin to the viability of smaller, lesser-known cryptos... both now and over the long term.
In fact, Eric recently put together a brand-new message for folks who might be interested in cryptos after seeing it surge to record levels earlier today. Watch Eric's message right here.
Today, it also seems relevant to point you back to our January 4 Digest...
In that essay, we said everyone who was buying bitcoin today – and similarly, gold and silver – is making the same kind of bet that George Soros and Stanley Druckenmiller made in 1992, when they "broke" the Bank of England and forced the central bank to devalue the pound. As we wrote...
They're putting money in a scarce asset designed to have low inflation that was born 13 years ago out of the financial crisis with the idea of working completely outside the traditional financial system... It's the anti-central bank trade.
We also said last month that MicroStrategy (MSTR) CEO Michael Saylor – who doesn't have quite the following of Musk, but still has a large one – has been the most outspoken corporate CEO we've heard talk about the idea of bitcoin being the world's future reserve asset...
He has grabbed attention and headlines by putting more than $1.2 billion of MicroStrategy's funds into bitcoin – much of it in just the last month – and encouraging Tesla (TSLA) CEO Elon Musk on Twitter to go all-in on cryptos, too.
Saylor says he considers bitcoin the company's "primary treasury reserve asset."
Saylor spoke with our colleague Daniela Cambone last month about this topic. And he discussed some of the conversations he had with Musk about it. Watch that video here.
Maybe Musk isn't going "all-in on cryptos" yet, but he's making moves in that direction...
Now, Musk is buying bitcoin and selling dollars on behalf of Tesla. And while that is headline-grabbing on its own, the details show it might not be as big of a risk as it sounds on the surface...
The amount he's spending ($1.5 billion) is a lot of money for any person, but it's less than 0.2% of Tesla's current market cap (around $820 billion)...
In some ways, Musk is making the same "asymmetric bet" (big rewards that outstrip the risks) suggested last summer during our "Capitalism in Crisis" presentation.
As we wrote around that time, in the August 6, 2020 Digest...
Don't put in any more money in bitcoin than you can afford to lose. But the long-term upside you may enjoy from owning at least some bitcoin or cryptocurrency is so big that it dwarfs the risks.
We know a lot of Digest readers took that advice to buy bitcoin... and they've been rewarded in a big way as it has surged roughly 270% since then. We're not sure if Musk watched that presentation. But based on what we know now, he likely would've enjoyed it, too.
And here's the bigger point for the crypto world today...
This might just be the start of a run of companies following in Tesla's footsteps...
Pretend Tesla and Musk don't exist for a moment...
Let's say that a fictitious Acme Enterprises has a bunch of U.S. dollars that it wants to make the most of. This company makes some great in-demand products... operates with a great balance sheet... and has a ton of cash on hand. It can afford to put a little into bitcoin...
It's the same deal with Smith Corporation in the next state. The company puts just a small percentage of its cash on hand into bitcoin. Then, its CEO chats with an old friend in charge of Money Incorporated about how simple it was to buy crypto and how he has enjoyed the price appreciation in the long run...
Before you know it, a few hundred of these conversations happen... CEOs and companies start buying bitcoin... and demand increases. It's not hard to see how the value of a scarce, digital asset (its code is designed so that no more than 21 million bitcoin will ever exist) could continue to grow exponentially from here.
Now, this "mass adoption" point won't happen tomorrow...
Musk is not the typical CEO. And the C-suite crowd is much closer to the skeptical or early-adopter stage of buying bitcoin than anything else. But we're willing to bet the bulls will multiply over the months and years ahead...
Even better, we don't even have to imagine this hypothetical situation. It's already happening...
Last week, representatives from more than 1,000 companies attended the World 2021 Bitcoin Summit...
Saylor, the admitted bitcoin bull, hosted the event.
Of course, with at least $1 billion in bitcoin on the company's balance sheet and it being the company's primary treasury reserve asset since August, he has some skin in the game.
But the point is, a lot of corporate decision-makers were interested in hearing about Saylor's experience... how he landed on making a bitcoin bet... and the benefits of it for MicroStrategy so far.
And Saylor said the message was heard. More reporting from Nick in our free NewsWire...
[Saylor] sees an "avalanche" of companies switching from fiat currencies to bitcoin over the next 12 months. He sees this as a way to protect themselves from inflationary pressures. We've already seen other publicly traded companies – like Square (SQ) and Marathon Patent Group (MARA) – add bitcoin to their balance sheets.
At the end of the day, this is a good thing for bitcoin adoption. More companies (and investment institutions) are seeing bitcoin as a store of value. That legitimizes the cryptocurrency, which should eventually pull in more buyers.
Indeed, this whole "corporate buying of bitcoin" story could play out very much like the trend we've seen over the past few months of institutional investors on Wall Street first considering, then buying cryptocurrencies.
BlackRock (BLK), the world's largest asset manager with $7.81 trillion under management, is now dabbling in bitcoin futures... And PayPal (PYPL) now lets users buy and trade cryptos in a few easy steps.
Yet as much as this all may sound like bitcoin has already "gone mainstream," it's still not quite there yet...
For just one example, new U.S. Treasury Secretary Janet Yellen made it one of her first orders of business to disparage the idea of cryptos. That tells us there's a case for it to stick around and be a bigger part of our lives.
And to hear folks like Eric and Austin say it, tremendous upside is still ahead in cryptos. Days like today, which begin with double-digit rises in bitcoin's price, show us why.
Here's one more example...
After the news this morning, notice that bitcoin's price took off... not Tesla's.
The company finished the day up only about 1.3%... Ho-hum. As we went to press this evening, bitcoin – which trades around the clock, like gold and other precious metals – was up roughly 13% since the early morning here on the East Coast.
The point is... Tesla buying bitcoin was taken much more positively for bitcoin than Tesla, as it should be, even though another part of the story is that the company plans to start accepting crypto payments in the future.
And if cryptos – and the underlying blockchain technology that backs them – become as widely adopted as we believe they can, this story is likely to play out in any number of companies or industries that most people are not even imagining yet.
Said another way... millions of companies, institutional investors, and others may decide in the future to find use for bitcoin. But no matter how many adopt it, only 21 million bitcoin will ever exist. So as demand surges over the long run, the price is destined to go up.
Sometimes the story is simple and direct.
But that doesn't mean it's any less important or detailed below the surface.
Again, for more details about this exciting movement playing out today, be sure to listen to what Eric has to say right now. You won't find a better guide in this space than him.
The Thing About Bitcoin's Volatility...
In an interview with our colleague Daniela Cambone, Bloomberg Intelligence Senior Commodity Strategist Mike McGlone explains why the oft-cited concerns about bitcoin's volatility are overblown. McGlone also details why he thinks the world's most popular cryptocurrency is maturing...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
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In today's mailbag, a question about the rest of our annual Report Card. What's on your mind? As always, you can tell us at feedback@stansberryresearch.com.
"Hi, are you going to give a rating to your other newsletters that are not mentioned in the report?" – Paid-up subscriber Kay H.
Corey McLaughlin comment: Yes. Friday was "Part I" of our annual Report Card. Stay tuned for Part II from our publisher Brett Aitken in the coming days.
All the best,
Corey McLaughlin
Naples, Florida
February 8, 2021