The credit crunch era has brought some extraordinary events but yesterday was right up there with them. Let me jump to the consequence highlighted by City-AM.
Bitcoin is extending its gain this morning, hitting a new record high of $48,216 during late afternoon trading in Asia.
We have got used to price surges and less frequently drops in this instrument as we immediately mull whether it is an asset,money or both? Actually is we know switch to the US Securities and Exchange Commission it looks as though someone else has been doing that too.
We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
That was from the car manufacturer Tesla and there was more.
In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.
Boom! And indeed as we noted at the opening the Bitcoin price has done exactly that so well done to anyone reading this who has some. But for Tesla there are more than a few issues and as I am not a lawyer I will simply say I am curious about the Ultra Vires issue. There are others.
The issue of Tesla and cash is a complex one as the SEC filing points out elsewhere.
There is no guarantee that we will have sufficient cash flow from our business to pay our substantial indebtedness or that we will not incur additional indebtedness.
So you are substantially in debt but you are now punting a risky asset? How much are you in debt?
As of December 31, 2020, we and our subsidiaries had outstanding $10.57 billion in aggregate principal amount of indebtedness .
Indeed the debt could restrict the business.
Our debt agreements contain covenant restrictions that may limit our ability to operate our business.
Also Tesla has a high degree of currency risk.
We transact business globally in multiple currencies and have foreign currency risks related to our revenue, costs of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the U.S. dollar, currently primarily the Chinese yuan, euro, Canadian dollar and British pound.
They also have expenses in Yuan and Japanese Yen. So apparently the solution to a risky business model is to add even more. The stock price has been extremely volatile to say the least as it is.
Our common stock has experienced over the last 52 weeks an intra-day trading high of $900.40 per share and a low of $70.10 per share, as adjusted to give effect to the reflect the five-for-one stock split effected in the form of a stock dividend in August 2020 (the “Stock Split”)
As ever with Tesla the position is highly complex. We start from a share price which has soared and is US $863 as I type this. So it could presumably raise cash easily and in fact did so at the end of last year.
Tesla unveiled a $5 billion capital raise, its second such move in three months……..With Tesla’s market capitalization at $598 billion, the new offering represents less than 1% of the company’s value. ( CNBC 8th December)
It keeps raising capital which is fine if it keeps growing. But the optics of raising money and then buying Bitcoin with some of it are again awkward. Actually the market capitalisation is now US $828 billion which is great on the way up but as the SEC filing pointed out the share price has been more than ten times lower quite recently.
I see the issue of accepting Bitcoin as payment as just a distraction here as Tesla could have done that at any time. On fact I take the opposite view to CNBC here.
The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments.
Er it would have liquidity in the cryptocurrency once buyers pay for cars in Bitcoin. Holding even more just increases the risk.
Is this a distraction?
Tesla was facing some bad news as reported by the Wall Street Journal.
The State Administration for Market Regulation, China’s top market regulator, said Monday that it and four other regulators had instructed Tesla to abide by Chinese laws and regulations and strengthen internal management to ensure the quality and safety of its products.
Also following Elon Musk’s drone footage showing the new Gigafactory in Germany there have been stories that progress has been much slower and there will be delays.
What about the environment?
This is an issue that arises as for example the German Tesla factory required the chopping down of part of a forest. But Bitcoin is very energy intensive.
Exciting news for #bitcoin
fans – it’s overtaken the Netherlands and UAE and is closing in on Argentina (in energy use, that is) ( @ruskin147 )
According to Cambridge University it is using just under 112 Terawatt hours per year or around 0.5% of the world’s electricity. Such numbers have led various wags to wonder if you could use a Tesla to mine Bitcoin? It also seems to have touched a raw nerve somewhere.
XPRIZE Carbon Removal is aimed at tackling the biggest threat facing humanity — fighting climate change and rebalancing Earth’s carbon cycle. Funded by Elon Musk and the Musk Foundation, this $100M competition is the largest incentive prize in history, an extraordinary milestone.
Now we can switch to a version of the moral maze Elon Mucl style. For example it was not long ago he was telling us this.
‘Bitcoin is almost as bs as fiat money,’ CEO said in December. ( Wall Street Journal)
Was he talking down the price then? If so did he buy and did he buy for himself as well as Tesla and very importantly in what order? After all he has had problems with his moral radar in the past.
Most notably, the SEC charged Musk with fraud in 2018 for his tweets about taking the company private at $420 per share.
Musk ultimately settled with the SEC, and was forced to give up his role as chairman of the company’s board and pay a $20 million fine on top of another $20 million fine for the company itself. ( CNBC )
Now we find he is playing what looks like a very familiar game.
tweet about it, Feels so wrong if you have that much influence on social media. ( @bc_bitcoin)
This is a complex issue as some will front run the price to attract in the unwary who will see the surge and think it is safe to join in when in fact it is not. So far it has worked for Bitcoin investors but can even it withstand this?
Also there the whole subject of Dodgecoin where Elon has previously claimed his tweets are a joke. Indeed Dodgecoin was invented as a joke. I wonder when all this is over who the joke will be on?