Digital Assets on Corporate Balance Sheets: Why Tesla Invested $1.5 Billion in Bitcoin
Tesla once again did the pioneering work when including Bitcoin in their treasury mix. What still feels too risky in the corporate finance world could soon become a new standard. What Tesla’s Bitcoin investment was all about, and why businesses should consider following Elon Musk’s lead.
When Tesla announced it invested $1.5 billion in Bitcoin earlier this year, it took the financial world by surprise. Why does a car company invest in Bitcoin?
Maximize returns on cash
According to Tesla’s disclosure to the SEC, it invested in Bitcoin for „more flexibility to further diversify and maximize returns on our cash.“ That plan must have worked well so far. Tesla confirmed it bought Bitcoin in January when the asset was trading in a range between $29,000 to $40,000. Today one Bitcoin is valued at $53,302. That means Tesla has made paper profits somewhere between $0.5 billion and $1.2 billion from its Bitcoin investments by now. If the trend continues, the carmaker may gain more profits from investing in Bitcoin this year than from selling electric vehicles in all of 2020.
Diversification of non-operational cash holdings
Treasurers argue that Bitcoin is too volatile for businesses to store their cash reserves, and they do have a point. It’s not a good idea to invest all cash in Bitcoin, and that’s not what Tesla did. According to Tesla’s announcement, it invested cash that „is not required to maintain adequate operating liquidity.“ The investment remains a sideshow for Tesla, albeit a very profitable one. When asked about the risks, Tesla chief Elon Musk described Bitcoin as „simply a less dumb form of liquidity than cash“ and said it’s „adventurous enough for an S&P 500 company.“
Progressive corporate branding
Tesla is a technology company with tech-savvy buyers and investors. Not all of them invest in Bitcoin, but many of them will be drawn to the crypto space. Investing in Bitcoin was therefore also a publicity stunt that has ensured Tesla media attention for several weeks. What a shift in sentiment: Five years ago, no serious business wanted to be associated with cryptocurrencies. Today, being involved with digital assets gives businesses that visionary image.
INVAO’s Managed Accounts for corporations
Tesla is in many ways a technological frontrunner which it has proven again by being the first major corporation to include Bitcoin in its treasury mix. That could be a model for other businesses as well, given the right approach to portfolio management. INVAO’s Managed Accounts serve corporate customers worldwide and enable them to hold part of their liquid funds in digital assets while minimizing volatility through active risk management strategies. That makes INVAO’s Managed Accounts the ideal approach for corporate clients. At one point in the not-so-far future, digital assets may become standard on corporate balance sheets, but risk management will remain vital.
To find out more about INVAO’s managed accounts, visit www.invao.org.