Tesla’s decision to sink $US1.5bn ($1.9bn) of company money into the digital currency bitcoin is historic. Whether history will judge it brilliant or crazy is another question — for now we will just have to regard it as momentous.
In essence the deal marks a major step forward in the general acceptance of the digital currency into the mainstream. The diversified electric car company Tesla now joins PayPal and a string of leading US investment banks in backing an alternative to existing currencies, including gold.
It also puts the writing on the wall for the Australian financial services sector that things are changing. Previously we have had occasional publicity stunts from various property developers willing to accept bitcoin, but big league corporations remain reluctant to accept it.
In common with attitudes to other new technology developments, notably the electric car, it looks like Australians are shy on everyday usage but big on investing in the broader story.
Investing in cryptocurrency remains highly speculative, with the distinct possibility of huge price falls at any given time. Still, retail investors, especially those who have stuck with bitcoin since its last peak at $US20,000 in 2017 (before falling below $US4,000) are now being rewarded as the stamp of approval from Tesla CEO Elon Musk sent bitcoin up to $US46,875.
A new survey by the Finder group released this week found one in five Australians either own or plan to own cryptocurrency by the end of 2021.
Meanwhile, among older investors it also looks like acceptance is also well ahead of corporate Australia.
Rob Joseph, a director of My SMSF Property, says 70 per cent of his clients hold cryptocurrency, though his client base is skewed towards IT and finance professionals. Joseph says that drawing on data from the local crypto exchanges he estimates around 25,000 Australian SMSFs hold digital currency as an investment — which is about 5 per cent of the wider SMSF population.
Importantly, the majority of older investors who hold bitcoin do so for the longer term rather than to trade. They are using bitcoin as an alternative to gold and though it has many common characteristics with the yellow metal it lacks the regulatory framework that gives comfort to private investors.
The bitcoin investment market is also considerably smaller, with the currency worth roughly a tenth of the total value of gold.
At its worst the Tesla deal is the collision of two speculative bubbles which will create considerable excitement among “to the moon” day traders but will be seriously tested should we get a sharp market drop.
At its best the deal may well make business sense as Tesla moves to accept bitcoin, the value of the most popular of the digital currencies increases in turn.
Of course car companies are not meant to invest in digital currency, but then again anyone investing in Tesla should know by now they are investing chiefly in the unique talents of Musk.
It’s early days but this ongoing acceptance of bitcoin is surely a wake-up call for many financial planners and stockbrokers who are still coming to grips with the concept of digital currency: professionally it needs to be fully considered and understood at the very least.
But the Australian Taxation Office certainly can’t be accused of dragging its feet: cryptocurrency capital gains and income are fully taxed.
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