By Mitchell Demeter
Tesla’s reveal last week that it’s invested $1.5 billion in Bitcoin signifies the start of a large trend toward institutional investment in the crypto asset class, which could have rippling effects on the industry both globally and locally.
It’s no secret that Elon Musk, who briefly became the world’s richest man last month, is personally bullish on bitcoin. Making Tesla the first Fortune 500 company to put bitcoin on its balance sheet however, is a business statement that takes both vision and risk.
Risk, not because Bitcoin isn’t a sound asset—quite the opposite—but because it opens him and the company up to critique that Tesla is hedging its bets against the value of the U.S. dollar.
Since the pandemic hit, Canada and the U.S. have been printing money at an unprecedented rate to offer economic relief. While the stimulus helps in the short term and cushions us against the effects of the economic crisis, long-term it could cause an additional crisis—one of hyperinflation and currency devaluation.
Therefore, Tesla’s move into crypto could be seen as a proactive hedge against the U.S. dollar. Afterall, Bitcoin was designed so that no more than 21 million will ever be created. This is why institutional investors like Musk are viewing it as a justifiable asset to invest in for treasury management.
Fuelling further controversy is the fact that Tesla is a publicly traded company, which means big banks own pieces of it and hedge funds around the world are now inadvertently exposed to Bitcoin.
Those that view crypto as an overhyped asset class could decide to pull their investment, however more likely we’ll continue to see a rise in institutional investment as the asset class proves to store its value.
As the industry becomes more legitimized globally, prepare to see the effects locally in Vancouver’s startup ecosystem.
Vancouver is a hotspot for fintech and as venture capitalists and investors look to make bets in the space, more innovation and ventures will follow.
As the industry becomes more mainstream, the conversation around regulation is also being expedited. As an industry player in Vancouver, I’ve been working closely with regulators to establish a framework for our crypto trading platform to be able to operate within a regulated framework.
This has led to many fruitful conversations around policy development, which is a step in the right direction. Clear regulation attracts more industry players and leads to more innovation in the space. It also helps protect consumers against bad actors.
So while it may not be as daring as his SpaceX mission to Mars, Musk’s bet on Bitcoin as a treasury management strategy, does set a new precedent for the Fortune 500 and I suspect we’ll soon see others follow suit.