Tesla Inc. Buys $1.5 billion in Bitcoin

the staff of the Ridgewood blog

Ridgewood NJ,  Laszlo Hanyecz said he wouldn’t spend his Bitcoins on a Tesla. Laszlo Hanyecz knows what he’s talking about, in 2010, Hanyecz paid 10,000 Bitcoins, worth about $446 million at current prices, for two pizzas.

It is claimed to be the first known commercial transaction of cryptocurrency. Back then, Bitcoin’s price stood at less than a penny. It hit an all-time high of about $47,000 on Tuesday, the day after Tesla Inc. said it bought $1.5 billion in Bitcoin and will accept the digital currency for the purchase of cars.

“Personally, I am not too interested in Tesla,” Hanyecz wrote in an email to Bloomberg technology writer Olga Kharif. “If you give it five years, I think the Bitcoin you’d spend will be more valuable than the car.”

Bitcoin has a long history of spectacular crashes. Most notoriously, the currency reached an all-time high of almost $18,000 in December 2017, only to see that value cut in half by February. By December 2018, it was trading at less than $4,000.With a history like that, nobody’s predicting Bitcoin’s heady rise can go on for long. But a four-fold increase just since October has fueled plenty of hope—and speculation.

What separates Bitcoin from a typical fiat currency ie… the US Dollar , of course, is volatility. A dollar won’t be worth substantially more or less tomorrow. During the Bitcoin frenzy of 2017, some people bought Lamborghinis with their winnings. Other Bitcoin holders watched as price fell by more than 80% the next year, before quadrupling last year.

Bitcoin was designed as a peer-to-peer cash system. To work as a currency however, it must be stable or be backed by a government, but people tend to treat Bitcoin as a risky investment, rather than as a checking account. When Bitcoin rallied, especially in the latter part of last year, average monthly transactions of various cryptocurrencies processed by BitPay Inc. fell 27%. Merchant-related transactions accounted for 0.3% of cryptocurrency spending in 2020, with the remainder dominated by an explosion of trading, according to researcher Chainalysis.

Transacting in Bitcoin is a risk for companies as well as consumers . Tesla’s bet on Bitcoin follows a few others, including MicroStrategy Inc. and Square Inc., that invested as a hedge against inflation. The moves boosted their stock prices when Bitcoin rose, but it can easily go the other way. For investors and corporate finance departments, it also makes earnings forecasting a lot more difficult.

Buying a car is a big financial decision, and it’s unwise to introduce another potentially life-changing factor on top of that, said Hanyecz. While he said he doesn’t regret buying those pizzas, Hanyecz said people are better off using a credit card.