Tesla Bitcoin Buy Only Beginning Of Corporate Crypto Demand

Feb 8, 2021 • 4 Min Read

Tesla news sent Bitcoin and crypto soaring this morning. We see this as an important moment for market validation but are not surprised by the move. In our 2021 Crypto Outlook report we saw corporate crypto buyers as a key catalyst for demand (slide 19: factor #16) and reason for raising our price target on Bitcoin from $40k to $100k. We’re reiterating our bullish view on crypto.

Tesla $1.5 billion Bitcoin purchase news sends crypto prices to new heights. This morning, Tesla disclosed a purchase of Bitcoin in its latest annual report and announced that the company will start accepting cryptocurrency as a form of payment. Crypto prices are up 10%+ on the news. We think the move is justified and the beginning of a larger corporate demand trend.

Crypto offers a $1 trillion consumer base opportunity for corporates to support as form of payment. Moves by Tesla, PayPal and others allowing customers to pay with crypto make the assets more usable. We expect this trend to continue. The market cap of Bitcoin and crypto now exceed $1 trillion dollars. We think many companies will look at that stored wealth and that consumer base and start accepting crypto as a greater means of payment. We expect that to get more crypto in the hands of corporates and consumers and we think that will be very beneficial to adoption and prices going forward.

Purchase makes strategic sense given Bitcoin and Tesla are both transforming the energy landscape. We think Tesla buying Bitcoin makes a ton of strategic sense given how both are reshaping the way energy is captured, transported, and consumed. Tesla’s solar and battery capabilities capture and transport energy in ways that weren’t previously possible. Bitcoin mining similarly allows people to convert excess energy into digital value that can be stored and later converted into products and services. We’re seeing energy producers and utilities sell excess capacity to miners. Renewable energy is an under-tapped resource. We wouldn’t be surprised if Tesla allowed customers to convert excess capacity into Bitcoin via mining in the future.

Crypto networks are disrupting a range of technology and financial services industries. We see crypto disrupting many industry segments across the tech (cloud, advertising, software, platforms, etc.) and fintech (payments, borrowing & lending, asset management, exchanges, etc.). Crypto assets are network value instruments. Like the internet, as users and businesses join the network for its technological utility the value rises. The difference with crypto networks and companies is incumbents can’t buy Bitcoin or crypto out of business. We see this with PayPal today. Bitcoin payments are already 3x larger, growing 12x faster, and 99% cheaper than PayPal – that’s disruptive but you can’t acquire your competitor if it’s a crypto network.

Companies exposed to blockchain disruption may have to buy crypto as a business model hedge. If you’re a business exposed to crypto disruption, how do you hedge? You own the asset, and you support crypto use by your customer base. This gives you incremental revenue over the short term as we’ve seen form Square and heard talk about with Apple and RBC this morning. In the long term as you make the network more valuable, you own a piece of it, and if it eats into your business model than the rise in the assets value helps offset revenue losses. We think this could happen with many other companies and think this is the key reason corporate treasury purchases are set to grow over the long run as a disruption hedge for incumbents.

S&P 500 companies hold $2.8T of cash and a 7.7% allocation like Tesla would be $215B of crypto demand. The $1.5B Tesla crypto purchase represents 7.7% of the company’s $19.3B cash balance but only 0.025% of the $2.8T in cash held by S&P 500 companies. A similar allocation to Tesla would equal ~$215B of demand. We don’t think this happens overnight, but we do think there’s much more room for corporate treasury penetration and expect the trend to continue.

What are the risk? Crypto is volatile. Profit taking. Corporations may be slow to adopt crypto. Demand may be overstated.

Bottom Line: We’re encouraged by Tesla’s decision. The move is in line with our broader crypto thesis. We see fundamental reasons for corporate crypto treasury exposure and expect others to follow suit. We’re reiterating our bullish view on crypto.

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