On Wall Street, it’s called “talking up one’s book,” where an investor or speculator promotes their holdings in an effort to spur others to buy those holdings – ideally, driving up the price. It may be a case of putting one’s proverbial money where their proverbial mouth is.
But then again, we’re living in the digital age, where there’s also the social media megaphone, which means the “mouth” part of the equation spurs buying and selling frenzies – as seen with GameStop or in cryptos, most visibly over the last several days, creating bubbles and then popping them.
News came on Monday (Feb. 8) from CNBC that Tesla, the electric car maker, has bought $1.5 billion of bitcoin, and that, per its annual report filed with the Securities and Exchange Commission, it foresees accepting the crypto as a payment option “in the near future.”
Tesla joins the ranks of other large corporates that have been buying cryptos – arguably, most visibly, bitcoin – in recent months. The roster includes MicroStrategy, which has been adding to its bitcoin holdings. According to an SEC filing earlier this month, it said it had bought another $10 million worth, and now holds a bit more than 71,000 bitcoin, which were acquired for an aggregate purchase price of $1.1 billion. Late last year, Square said on Twitter that it bought $50 million in bitcoin, and that the crypto represents “an instrument of economic empowerment, and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose.”
The strategy of buying and holding bitcoin on a corporate balance sheet is different from, for example, PayPal’s strategy of allowing users to buy and sell bitcoin, and use it at PayPal merchants later this year.
Holding crypto on a corporate balance sheet is ostensibly a way to generate returns higher than what would be gained by simply holding cash on the balance sheet. Simply speaking, a 20 percent gain on bitcoin in a day (this is hypothetical, of course), can generate financial firepower for the firm that then sells those holdings, and then has real, tangible cash on the books (in large quantities) that can be deployed for organic expansion and acquisitions. Diversification, along with hedging assets against one another in a portfolio, are key tenets of treasury management. But the reverse ripple effect can be true, where a company can lose money on its bitcoin holdings if the value suddenly heads south in a major way.
But it should also be noted that Tesla’s CEO Elon Musk has been busy over the past several weeks “talking up” various cryptos, most notably Dogecoin (the joke coin) and, of course, bitcoin. Musk himself set off a buying tsunami at the end of January when he added #bitcoin to his Twitter bio.
Hashtags And Tweets
We’re in the age now where hashtags and tweets can move markets and individual asset prices up and down, where excitement trumps analysis, and where retail investors crowd in and out of positions when there is a fear of missing out (FOMO). Tweeting in order to disrupt markets can be a regulatory tightrope to walk.
Just a few years ago, Musk settled SEC fraud charges tied to social media forays: He and Tesla agreed to pay $40 million in penalties tied to Musk’s August 2018 tweets saying that he could take Tesla private at $420 per share (which was then a significant premium to where the stock was trading) even though no deal was finalized and no funding had been secured. Musk had to pay $20 million in penalties and Tesla had to pay $20 million as well. He also had to give up his chairman post with the company (though he remained as CEO).
There’s a difference, or at least there should be a difference, between what might be a “pump and dump” scheme and a genuine corporate strategy. And indeed, as noted by PYMNTS last month, treasurers want to leverage digital assets in daily cash management activities.
But Tesla and Musk show how the lines can blur when the space is as unregulated as the cryptocurrency sector. We’re likely to see more regulation here, as the Biden administration tackles the debate over whether cryptos are securities or currency (i.e., mediums of exchange).
In the meantime, Musk’s balancing act continues – and one misstep may send bitcoin down from its lofty perch, taking millions of enthusiasts who’ve latched onto the wave down the slippery slope.
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