When Tesla announced a $1.5 billion investment into Bitcoin it sent it to all time highs and put $50,000 into its sights.
Tesla has also added a new layer of risk into its balance sheet. Bloomberg had a very interesting piece on Tesla’s latest Bitcoin move stating that Bitcoin will need to surge to $500,0000 in order to return what the S&P500 has over the last 10 years. The chart below is showing a CAGR (compound annual growth rate of around 14%). For the calculations this chart the assumption was that Tesla invested in Bitcoin at January’s average price of £34,672. Check out the information below.
Furthermore, this means that Bitcoin will have to reach $100,000 over the next 20 years in order for it to beat Tesla’s own return on equity which, according to Bloomberg is 5.36%.
A new level of risk for Tesla
So, the other point to note is that Tesla has tied up a new level of risk for its income statements and balance sheets in this latest move, for better or for worse. The recent volatility of Bitcoin underscores that element of risk. Any asset that can gain and lose double digit percentages over the course of a couple of weeks will not be every investor’s idea of a wise investment. This level of volatility will now be further injected into Tesla. Elon Musk is quite used to the big profile and grabbing the headlines and this latest move increases both the risk and the reward for Tesla.
Another level of validation
Tesla also joins the line of another high profile validation of Bitcoin. It is now possible to purchase Tesla’s using Bitcoin’s. The more places that Bitcoin can be used to purchase things the greater its popularity can grow.