Bitcoin: Why a Wave of Huge Companies Like Tesla Rushing to Invest Could Derail the Stock Market

Tesla has already achieved a significant milestone in the manufacture of electric cars. In 2021, the company announced that it had invested US$1.5 billion in Bitcoin. This announcement had a serious impact on Bitcoin's price, and within just 24 hours, the value rose from $39,400 to $48,000. In the first six weeks of 2021, the price recorded a 50% rise. Elon Musk, the CEO of Tesla, is undoubtedly making massive profits by now. The entire investment is currently worth $2 billion, meaning the company has made a whopping US$500 million. The announcement by Tesla is no surprise seeing that there has been a rising wave of companies investing in Bitcoin. In recent months, several institutions have been reported to be adding cryptocurrencies to their balance sheets. Moreover, many e-commerce websites have also started accepting Bitcoin as a payment method.

Even reputable game developers are warming up to the idea that Bitcoin can be a reliable payment option. In addition to e-commerce sites, South African casinos are accepting Bitcoin alongside other payment methods. There are reliable online guides to find the best Bitcoin casinos with rewarding welcome bonuses or offers. Here, you will also get recommendations for popular casino games, including a guide that covers everything from the pros and cons of using BTC at casinos to advice on how to buy and store Bitcoin in South Africa.

Volatility Spillover

The justification by Tesla in how it manages its reserves is that the company is looking for diversity and flexibility to maximize cash returns. This may be the reason why they have considered investing in Bitcoin. While it's been a tradition of corporate treasurers to use money markets to invest extra cash to make some small profits, the current environment of long-term low-interest rates has made it difficult for businesses to thrive. Nonetheless, cryptocurrency is very different from standard money management. These assets are highly volatile, and you cannot compare them to cash reserves held by a company.

The amount of cryptocurrency investment by Tesla is almost worth 8% of its reserves. If top global companies like Google, Twitter, Facebook, and Microsoft were to commit a similar amount, it would translate into US$7 billion worth of investment. This is huge, as it is only 1% short of the total worth of the Bitcoin market. This move could trigger other retail investors and companies to rush into the market and make it appear comparably stable. Financial analysts have forecasted a scenario where the Bitcoin price could shoot to over US$100,000 by 2022.

This boom will increase the Bitcoin value on company balance sheets by many folds. For instance, the value of Tesla reserves could rise to 12%. If the company sustains its investment plan in digital assets, the percentage could increase even further.

However, such financial decisions have had negative impacts on the share prices of some companies. After the announcement of the Bitcoin investment, Tesla's share prices rose by 2% and then plunged by 5%. On the other hand, MicroStrategy, a Canadian tech company, witnessed a tenfold rise in share price after a massive investment in Bitcoin. But, after the Tesla Bitcoin announcement, the prices fell by close to a quarter. Therefore, heavy Bitcoin investment could make markets more vulnerable in the future. Investors could be forced to sell the assets to try and mitigate their losses and further plunge the financial market into instability.

Role of Regulators

To restore sanity, global regulators have raised concerns about the likelihood of volatility spillover into traditional capital markets. More specifically, they are restricting back door approvals for companies holding huge portions of cryptocurrencies on their balance sheets. For example, in recent months, the US Treasury secretary Janet Yellen and the European Central Bank president Christine Legarde have rallied the financial institutions to regulate Bitcoin investments. The Bitcoin trajectory is surging towards the US$100,000 mark, and this trend must be tamed by restricting the percentage of digital assets held by companies. The US has already established a rule that no company should buy back in excess of 25% of their daily stock.

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