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In Retrospect, it was Inevitable

Tesla buys $1.5B of bitcoin on its balance sheet

In an event that’s been highly anticipated for months, Tesla has purchased $1.5 billion worth of bitcoin on its balance sheet. While previously speculated, the first public indication of this move would be coming was on January 29th, when Elon Musk changed his twitter bio to “# bitcoin” and tweeted a cryptic message stating “In retrospect, it was inevitable.”

Tesla is the first S&P 500 company to adopt bitcoin (or any digital asset) as part of its treasury policy. More interestingly, Tesla seems positioned to begin accepting bitcoin as payment for Tesla products in the near future -- adding additional use and value to the bitcoin monetary network.

In Tesla's annual 10-K filed with the SEC today, they stated:

Once is a fluke, twice is a coincidence, three times is a trend

Tesla’s bitcoin purchase announcement today follows Microstrategy’s announcement in August 2020 (the first public company to take a long-term treasury position in bitcoin) and Square’s announcement in October 2020. With Tesla making the third major public company to take a material treasury position in bitcoin, we can confidently say that corporate bitcoin adoption is now a trend. Already this morning, analysts are beginning to speculate on the next corporations to adopt the strategy.

There’s nowhere else for savvy investors to hide

We believe this moment is a pivotal moment in the bitcoin adoption curve -- and an inflection point where many corporate and institutional investors who were previously ignoring the bitcoin trend will be forced to reconsider. The fears of monetary debasement have only increased and risks evident in the sovereign bond market are becoming more apparent. While bitcoin isn’t the only way to express this market view, we agree with Paul Tudor Jones that “the best profit-maximizing strategy is to own the fastest horse,” referring to bitcoin (and the cryptocurrency market at large).

At the moment, cryptocurrencies still only comprise a miniscule portion of ultra high net worth individuals’ portfolios.

At the same time, many sovereign bonds yield under 1% and may move into (further) negative yielding territory. It’s becoming more and more difficult for investors to justify holding bonds or cash in this environment where the risks of the global financial system are being shifted onto holders of those instruments, without any accompanying compensation for the risk being taken.

Further, with global sovereign debt levels remaining elevated, central bankers have no practical ability to step in the way of the asset repricing taking place today.

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