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Tesla's $1.5 billion bitcoin investment is already up 37% as regulatory scrutiny ratchets up

·3-min read
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Tesla (TSLA) blazes another trail by becoming the first non-fintech Fortune 100 company to load up on bitcoin (BTC-USD) — amassing a $1.5 billion stake in January. Its new cryptocurrency investment may be sitting on unrealized gains of over 37%, including an 18% run-up in the price of bitcoin Tuesday morning to $47,000.

According to Yahoo Finance calculations and data, Tesla’s volume-weighted average price in January was $34,200, which we use as a proxy for Tesla’s purchase price of bitcoin. Based on the $47,000 bitcoin price as of 4:30 a.m. ET on Monday, that represents a gain of roughly 37%, or an unrealized profit of $561 million.

Bitcoin for Tesla vehicles

Tesla announced the bitcoin investment early Monday in a regulatory filing with the U.S. Securities and Exchange Commission (SEC) as part of its annual 10-K. It also disclosed its intention “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.”

But accepting bitcoin for the latest Model Y may invite increased scrutiny from a bevy of U.S. regulators keen to make sure that the payments don’t come from terrorists or money launderers. That’s because crypto exchanges like Coinbase are money services businesses (MSBs) that are licensed by the Financial Crimes Enforcement Network (FinCen) — subject to reporting requirements for suspicious transactions. The Internal Revenue Service (IRS) would also be incentivized to ensure bitcoin payments aren’t used to dodge taxes.

A motorist charges a 2020 Model Y at a Tesla supercharging station located in the parking lot of Colorado Mills outlet mall Wednesday, Nov. 17, 2020, in Golden, Colo. (AP Photo/David Zalubowski)
A motorist charges a 2020 Model Y at a Tesla supercharging station located in the parking lot of Colorado Mills outlet mall Wednesday, Nov. 17, 2020, in Golden, Colo. (AP Photo/David Zalubowski)

The choke point for keeping “dirty crypto” out of the payments system is at the exchange level in the U.S. and elsewhere. To be useful as a payment mechanism, most crypto holders must first exchange cryptocurrencies into fiat currencies in verified user accounts that are subject to oversight.

Anyone wanting to buy a Tesla with bitcoin today must first convert it into U.S. dollars, euros, yuan or some other state-sponsored currency. Once the crypto-for-car payment becomes direct, it’s possible to sidestep the exchanges and their attendant oversight. This raises the question of whether corporations like Tesla, if it takes payment in crypto, would be subject to the Know Your Customer (KYC) and anti-money laundering rules that govern the financial services industry.

More risks for Tesla

In addition, Tesla is now subject to additional risks like balance sheet erosion, as the current value of the company’s $1.5 billion bitcoin investment as a percentage of the company’s 2020 year-end “cash and cash equivalents” position is over 10%, according to Yahoo Finance data and calculations. Yahoo Finance’s Brian Sozzi and Julie Hyman interviewed TD Ameritrade Chief Strategist JJ Kinahan Monday, who raised the following issues:

“I think one of the big issues we'll see that many people had going into this was: Should I trade Tesla as a technology company? Should I treat Tesla as an automobile company? ... And I think now as a Bitcoin investment ... it changes ... how you look at Bitcoin itself in terms of where will this start fitting into balance sheets of major corporations, as well as day to day life ... How does their board, C-suite and large shareholders feel about this? It'll be interesting to see all the parties that have a voice over the next few months, when they weigh in, and if this philosophy changes for Tesla, a little bit more,” said Kinahan.

Questions abound and will doubtlessly fuel the full brunt of regulatory inquiries as the details of Tesla’s latest investment gambit shake out. Nevertheless, it’s not bad to be up 30% in this nascent trade.

Follow Jared Blikrie on Twitter at @SPYJared

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