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Tesla purchased $1.5 Billion dollars worth of cryptocurrency. One might think that such a large purchase would have come with a significant amount of fanfare from the Company itself, especially since Elon Musk, the Company’s CEO, is well known for boasting about cryptocurrency, stocks, and anything else that crosses his mind to his 46.2 million Twitter followers. But rather than blasting the news out on social media or sharing a press release on Tesla’s website, the Company covertly inserted a few references to its new position on Bitcoin in a regulatory filing with the U.S. Securities and Exchange Commission (SEC).
Unless you’ve been living under a rock or have otherwise been out of sync with social media, the news media, and your “crazy” uncle who loves Bitcoin, you know the effect that Tesla’s purchase has had on Bitcoin and the Bitcoin community. The price of Bitcoin skyrocketed 10% within 30 minutes of the news becoming public, smashing the all time high of almost $42,000 USD set exactly one month ago today. As of publication, the price of Bitcoin is currently sitting at just over $46,000, which is around $2,000 dollars below the new all-time high price of over $47,500 set just a few hours ago. It’s been quite a day for Bitcoin.
Tesla’s New Cash Management Policy
Tesla’s stated reason for purchasing Bitcoin, per this morning’s regulatory filing, is the following:
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.
This announcement likely did not come as a surprise to many seasoned participants in the Bitcoin community. After all, it’s been six months since the software company Microstrategy initially announced its own decision to maintain a portion of its corporate treasury in Bitcoin and almost a week since Microstrategy CEO Michael Saylor and the rest of his team hosted a conference with thousands of executives from hundreds of companies to discuss, among other things, the rationale for using Bitcoin as a treasury asset and the methodology the executives in attendance could use to purchase Bitcoin for their own treasuries. Not to mention the conversation that Elon Musk and Michael Saylor almost assuredly had a couple months ago about moving Tesla's corporate reserves into Bitcoin
While I have no doubt that Tesla’s purchase of Bitcoin will fuel its treasury policies and treasury gains for years to come, I believe that there is another, perhaps even more tantalizing reason behind Tesla’s Bitcoin purchase: Micropayments.
The Real Reason for Tesla’s Massive Purchase
Now before you tell me to put on a tin foil hat and buzz off, hear me out. It should come as a surprise to no one that Tesla is open to and planning on accepting Bitcoin as payment. They said as much in the same regulatory filing that we mentioned before:
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.
However, paying $40,000 USD or more for a car doesn’t really qualify as a “micropayment”, does it. It’s natural to think of Tesla as a car company, and that’s likely all that most people know about it. But did you know that Tesla also makes a fair amount of money through its supercharging stations (basically gas stations for Tesla’s electric cars)? How about that Tesla is in the business of selling solar panels for homes? And this last point might be the most surprising of all: did you know that Tesla intends to turn its fleet of cars into autonomous robo-taxis?
It seems natural for Tesla to want to first test Bitcoin out by purchasing it, hodling it, and doing nothing else with it for a little while. And moving next to accepting Bitcoin for its largest, most ubiquitous product seems like the logical next step. But what is the end game? Where does Tesla go after that?
I believe that there are at least three main ways that we could see Tesla interact with Bitcoin and micropayments in the near future. And not in the way you might initially think.
Tesla’s Bitcoin Strategy
Will Tesla accept Bitcoin directly as payment for supercharging, solar, robotaxis, and more? Sure. I have no doubt that we’ll see that option rolled out shortly after Tesla starts allowing Bitcoin as payment for its cars. But how will that work? After all, Bitcoin is notorious for having high transaction fees, especially in the context of small, frequent payments. I believe there are a few different possible workarounds.
Tesla and Lightning
The Lightning Network is probably the most likely of these workarounds to be used and to succeed. It works by establishing a ledger entry on the blockchain that both parties have to sign off on in order to transfer or spend any funds. Many transactions can be performed within the one ledger entry before it is broadcast to the Bitcoin Blockchain, which reduces network fees per transaction to fractions of a penny in many instances.
You’re likely thinking now that it would be crazy to imagine that every Tesla customer is going to have the patience to go through the process of setting up a ledger entry on the Lightning Network with Tesla. But what if they didn’t have to even think about it? After all, Tesla’s products these days are packed full of software code. Each Tesla car and solar panel could come pre-packaged with a connection to the Lightning Network and an easy to use interface built into the software to allow quick, painless payments for all of Tesla’s current and future services.
The Tesla Bitcoin Wallet
This option is far from as crazy as it sounds. After all, most people these days (at least in the U.S.) are required to purchase their cryptocurrency through a centralized Exchange like Coinbase or Kraken. So, whether we like it or not, many of us are already comfortable allowing a third party to hold Bitcoin for us and/or manage our private keys.
This same infrastructure could easily be repurposed for use with Tesla payments. Transfer some Bitcoin into your Tesla Bitcoin wallet monthly or yearly and then make your payments for supercharging, solar energy from the Tesla’s grid of customers, or transportation on Tesla’s fleet of robotaxis, all while paying minimal network and transaction fees.
Without a doubt, my name for a possible Tesla-themed cryptocurrency could use some work.
For better or for worse, creating a new cryptocurrency is relatively easy. At this point, there are thousands of active cryptocurrencies and a few thousand more that have failed along the way. It would not be out of the realm of possibility for Tesla’s software engineers to spin up a new cryptocurrency for exclusive use by customers in payments for Tesla products and services.
But hold on, how would the value of this hypothetical Tesla cryptocurrency be determined? By connecting it to Tesla’s Bitcoin reserves of course. After all, Bitcoin is a finite resource that cannot be created by anyone for any purpose. And all Bitcoin and associated wallets are publicly available on the Bitcoin blockchain. It would be a simple matter for Tesla to establish a conversion rate between its cryptocurrency and Bitcoin, say 1000 $TES for every 1 Bitcoin. And $TES holders could be comfortable knowing that Tesla couldn’t do anything to impact the value of the cryptocurrency without every user easily and quickly finding out about it.
In retrospect, it was inevitable
Bitcoin and Tesla. Tesla and Bitcoin. Only time will tell whether this is truly a match made in heaven. But time will also reveal what other uses for Bitcoin Tesla has up its sleeve. Because using Bitcoin as just a treasury asset leaves so much of its functionality and benefits on the table.
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