Tesla Inc. on Monday said that it bought $1.5 billion in bitcoin, a purchase that comes after CEO Elon Musk has promoted the world’s No. 1 digital asset, along with other cryptos, in recent weeks.
Bitcoin’s price BTCUSD, 5.43%, already on a stratospheric rise, garnered an additional fillip from the announcement, with a single bitcoin changing hands on Monday at $42,709, up over 9%. Prices touched a record peak near $45,000
But one of the key questions swirling around the decision by the manufacturer of electric vehicles is whether the move, including the decision to eventually allow for the sale of its products to take place in bitcoins, is a prudent use of capital. It’s a question that’s particularly important given the wild swings that both shares of Tesla TSLA, +1.31% and bitcoin are prone to, even if those assets have both been on a nearly uninterrupted ride higher.
“I think this is awful strategy on many, many levels,” Christopher Schwarz, associate professor of finance and faculty director of the Center for Investment and Wealth Management at the University of California at Irvine in emailed comments.
“In essence, this is like creating [currency] risk since none of Tesla’s suppliers are paid in bitcoin,” Schwarz told MarketWatch.
An email to the company for comment wasn’t immediately returned.
Musk’s moves come as Tesla focuses on ramping up its production of electric vehicles, with its share price soaring but the auto maker still a relatively niche player despite its market value of over $800 billion.
Shares of Tesla are up an eye-popping 472% over the past 12 months, making it one of the few traditional stocks that have outperformed bitcoin’s gain of 337% over the same stretch,
The Wall Street Journal noted that Tesla has taken advantage of its rabid investor base and its share price rally to bolster its cash position, bringing its cash holdings to around $19.4 billion at the end of last year, up from around $6.3 billion at the end of 2019.
That means that its current bitcoin allocation represents about 8% of its cash holdings.
