Tesla's Investment in Bitcoin and the Future

Illustration by Jessica Zhang

On February 7, 2021, Tesla announced its investment of $1.5 billion in Bitcoin and its plan to begin accepting the digital currency as payment for its products. Although the move is not surprising since Tesla brands itself as a non-traditional and innovative company, this news will set a catalyst for how businesses and society in general will change towards a more technology-centered future. 

What is Bitcoin? 

Founded in 2009 with no trace of its owners, Bitcoin is a type of cryptocurrency that eliminates the need for traditional intermediaries like banks and governments to make financial transactions.  Essentially, Bitcoin is powered through a combination of peer-to-peer technology using software-driven cryptography, eliminating the need for items of physical value and the involvement of a third party in any contract. 

Each bitcoin is a computer file stored in a digital wallet on a computer or smartphone and is powered by an open-source code known as a blockchain. Blockchain creates a shared public ledger, making information accessible for anyone interested in purchasing. Unlike fiat currencies, Bitcoins are not issued by a central bank or government system but are "mined" by a computer that solves complex mathematical algorithms. Once the computer solves these algorithms, the transaction blocks are verified and added to the blockchain. Bitcoins can be purchased with standard national money currencies and placed into a "bitcoin wallet”. People interested in investing can get started through cryptocurrency exchanges, investment brokerages (example: the famous Robinhood!), Bitcoin ATM, or peer-to-peer purchases. 

As the world becomes increasingly reliant on technology, Bitcoin has shot to become one of the most valuable assets in the 21st century. Major companies are buying into bitcoin to access its several benefits such as accessibility and elimination of traditional banks or government intermediaries fees. 

What Bitcoin means for the future 

As a major company, Tesla’s investment in Bitcoin can bring a lot of impact in terms of how society functions. 

Since most people look up to Tesla, and it is a company that creates a lot of buzz, its adoption of Bitcoin can encourage other company founders to invest in bitcoin as well. Furthermore, Tesla’s influence can increase customer demand for this type of cryptocurrency as a mode of payment, forcing companies to invest. Take for instance the high soar in bitcoin price after Tesla announced its US$1.5 billion investment; it went from around US$39,400 to an all-time high of over US$48,000 in less than 24 hours. Although prices fell back, Bitcoin price remains up over 50% in the first six weeks of 2021. Although Tesla has yet to accept bitcoin as payment, the company's popularity can encourage widespread use. As more and more people invest in bitcoin,  companies must adapt to the changing times to better address and fit their customers' lifestyles.

Bitcoin allows the world to become increasingly connected. As this type of cryptocurrency allows instant transfer globally, it makes the overseas remittance process a lot easier, cheaper, and more secure. Although bitcoin is priced high at the moment, in the near future when its prices will become more affordable, this more efficient remittance process can become increasingly true. Furthermore, Bitcoin removes barriers to entry as anyone can transact anywhere without authority controlling the money market. 

However, the increasing reliance on Bitcoin raises questions on the fiat money value and government regulations. For instance, the Bank of England governor Andrew Bailey cautioned over Bitcoin's use as a payment method, saying it lacked "intrinsic value" unlike cash or gold. Likewise, some institutional investors are also wary of the price volatility or Bitcoin price fluctuations. Bitcoin volatility is common as bitcoin is essentially a form of digital currency, creating uncertainty since it has no physical form. Rumors and unsubstantiated news can cause prices to rise and fall in any given day. Bitcoin must be widely adopted to be recognized as a true alternative to traditional currencies to become a viable currency and store-of-value without physical form. Furthermore, as bitcoin mining requires and produces a significant deal of energy the entire world uses today, governments will create regulations addressing this issue.  

Tesla's investment in Bitcoin raises buzz and uncertainty on the cryptocurrency. Nevertheless, this move is something to look out for.