Elon Musk’s decision to stash 8% of Tesla Inc.’s cash reserves in Bitcoin animated the crypto universe.
Now was Bitcoin’s moment, its arrival on the fourth-biggest company’s balance sheet is a gateway to wider acceptance as a cash alternative. Longtime booster Mike Novogratz suggested soon “every company in America” would accept it as payment. Michael Saylor, whose company, MicroStrategy Inc. parked more than $1 billion in Bitcoin, said the dollar’s days as a reserve currency are toast. RBC Capital Markets analyst Mitch Steves urged Apple Inc. to follow suit.
Observers outside the cheer-leading world of Bitcoin took a different view. While a broader adoption is possible, what’s more likely is that Bitcoin remains what it’s almost always been—a speculative asset that an odd shop or two takes in lieu of cash.
“I’m certainly very skeptical that there’s going to be widespread movement in this direction in the near term,” said Chester Spatt, finance professor at Carnegie Mellon Tepper School of Business who served as chief economist and director of the SEC’s Office of Economic Analysis. “You have huge volatility, so that raises a lot of questions.”
Even industry participants are doubtful, noting that the base case for Bitcoin has shifted from a medium to exchange goods and services to that of “digital gold,” a store of value that promotes “hodling” crypto assets rather spending them in business transactions.
That’s especially been true as investors worldwide seek higher returns with central banks keeping borrowing rates near zero and governments providing abundant stimulus during the Covid-19 pandemic, fueling concern that inflation is imminent.
But Tesla’s flier poses a logical retort. If the company moves cash into Bitcoin, then it’s equating the two. That may partly explain why the electric-car maker also said it will eventually accept the electronic coin as payment for its cars. If it’s cash, why can’t someone use it as such?
The real test of its conviction in crypto, Spatt said, will be in how Tesla lists its vehicles. “Are they going to price their cars in Bitcoin or are they going to price their cars in dollars?” he said. “That’s the key to what this means.”
Even if Tesla and Musk see it virtually the same as a currency—a place to park reserves, something to buy a Model 3 with—most businesses and virtually all of the American public, see it as something else, definitely not the same as cash.
Last year, as Bitcoin rallied 300%, just 0.3% of all transactions that involved cryptocurrencies were by a merchant. The rest were trades, whose volume has surged, according to researcher Chainanalysis. Meanwhile, more than 15,000 businesses worldwide U.S. accept Bitcoin or offer crypto ATMs, according to data from Fundera and coinmap.org.