The world's most famous cryptoasset, Bitcoin, has been booming following Tesla's announcement that it has invested around $1.5 billion in it. Its Form 10-K, which Tesla files with the US Securities and Exchange Commission (SEC) as a publicly listed US company, also disclosed that Tesla would soon accept Bitcoin as payment on some of its products.
Following Elon Musk's addition of ''#bitcoin" to his Twitter profile in January 2021, alongside the cryptic tweet, "In retrospect, it was inevitable", the $BTC's value spiked by 20%, increasing by $5,000 in the space of just an hour to trade at a price of $37,299.
This was not an isolated surge. Since the start of 2020, Bitcoin has been trading at more than double its all-time high records, which was around $20,000 in late 2017, and almost quadrupled in growth. The volatility of the pandemic and the need for safe haven investments may have also factored significantly in $BTC's explosive growth.
On 17 February this year, $BTC surpassed $50,000 for the first time and this week exceeded $58,000 – nearly three times its 2017 peak.
Richard Waters and Eric Platt, writing in the Financial Times, say few companies are likely to follow Elon Musk, asserting that "[cryptoassets] play almost no role in the staid world of corporate treasury, where protecting the company's financial liquidity and cash reserves are key." Waters and Platt quote Jerry Klein, a managing director at Treasury Partners, an investment management firm in New York, as saying: "Corporations invest their cash in very high quality, short-term fixed income securities, and are willing to accept a relatively low rate of return. I don’t think there is a case to be made for investing corporate cash in a risky asset like bitcoin, where they could experience significant declines."
The criticisms levied at Tesla's $BTC holdings can also be applied to the company's plans to accept $BTC as payment for some of its products, given the volatility of the asset. The move could bring considerable risk to the company's profitability, not to mention the tax and accounting challenges to consider.
It is perhaps predictable that many financial commentators, so often enmeshed in traditional finance systems, tend not to support or speak favourably about cryptoassets, which have tremendously disruptive potential. Nevertheless, we are increasingly hearing from and speaking with clients who are considering cryptoassets as an ordinary part of their investment portfolio.
Individuals and businesses considering developing blockchain-based solutions or investing in cryptoassets should be mindful of the associated legal and regulatory issues (for example, restrictions on undertaking regulated activities and marketing financial promotions, data protection and tax) and practical considerations (for example, safe custody and private key management arrangements).
Get in touch with our dedicated Blockchain Group, MDRxTech team or your usual Mishcon de Reya contact to discuss any cryptoasset-related matters.