With the Bitcoin price surging to new record highs over the weekend, sitting slightly above $56,000 at the time of writing early Monday morning, electric car maker Tesla is expected to have made more (paper) profit in January trading the cryptocurrency than from selling its vehicles.
Even Tesla boss Elon Musk, the maverick investor who convinced his board to change the company’s investment rules to purchase $1.5 billion of Bitcoin, indicated his surprise at just how successful his punt on the digital asset has so far been. Even hinting that he also suspects the bull run may be overheating. He commented that the current dollar exchange rates of Bitcoin and Ether, the second most traded cryptocurrency “do seem high lol”.
Bitcoin’s value gained 3% over the weekend to hit $57,380 before a slight retrace since. That saw the total value of all the Bitcoin’s released into circulation since the digital currency started to be ‘mined’ pass $1 trillion for the first time. Bitcoin is up over 20% over the past 5 days. One of the main recent catalysts to the continuing bull market was Tesla’s own announcement it had invested $1.5 billion into the cryptocurrency.
The move was taken by the market as a strong indication Bitcoin is nearing mainstream acceptance. A prospect seemingly brought closer by Musk saying he hoped Tesla would soon be accepting Bitcoin as payment for its electric cars.
Somewhat bizarrely, the increase in Bitcoin’s dollar exchange value from when Tesla disclosed its huge investment (most of which was probably made at lower prices), to over $55,000 now means a paper profit of over $1 billion is more than was made selling cars over the whole of 2020. Tesla’s 2020 profit, its first full-year in the black, was $720 million.
That a profit was realised at all was only thanks to additional income made from selling surplus carbon credits to car makers still producing petrol and diesel-engine models. Traditional car makers are ‘taxed’ for their contribution to harmful emissions by being obliged to pay for carbon offset credits to offset the carbon footprint beyond a defined threshold.
Because Tesla only makes electric cars, which are not ‘taxed’ in the same way, its own quota of carbon credits is a surplus and can be sold on to other manufacturers beyond their own threshold.
JP Morgan recently released a note to investors that expressed its analysts’ opinion that Bitcoin is currently worth only $25,000 in the context of current levels of volatility. However, the investment back also now thinks the cryptocurrency is “here to stay”, due to millennials showing a preference for it ahead of gold as a store of value.
Despite new faith in the long-term prospects of the digital currency market, the bank considers the current market for cryptocurrencies “most likely in a bubble due to excessive speculation”.
Of Tesla’s exposure to Bitcoin and inference of consciously adding air to a bubble to his own and company’s benefit, Musk said on Thursday evening:
“To be clear, I am not an investor, I am an engineer. I don’t even own any publicly traded stock besides Tesla. However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere. Bitcoin is almost as [bulls**t] as fiat money. The key word is ‘almost’.”