The Crypto world was aflutter this week in response to many headline-grabbing news stories about cryptocurrencies, particularly Bitcoin. In the aggregate, the news was good…and bad. On the negative side came headlines from Adyen’s CEO and Co-Founder Pieter van der Does. Subsequent to his company’s blow-out earnings release, van der Does commented that Adyen does not see Bitcoin as a viable payment option, and its merchants are not requesting it. Also on the less-than-positive front came comments from Paypal’s CFO, John Rainey, indicating that Paypal would not appropriate any corporate funds for Bitcoin investment.
Conversely, on the (seemingly) positive side came a sensational headline from Tesla CEO, Elon Musk, declaring that not only did Tesla buy $1.5B of Bitcoin, but also that it would accept Bitcoin as payment for autos in the future. On the back of this came a news release from Mastercard that its network would accept payment by select cryptocurrencies later this year.
As is usually the case with any current newsworthy story about Bitcoin or crypto, the overtly good news immediately drowns out the bad, leaving net sentiment in mainstream and social media optimistic, and bullish on the continued use, growth and value of cryptocurrency in the main. But as I’ve often noted, in today’s lightning-fast media cycle, the informed and knowledgeable observer must be able to separate the signal from the noise. As this relates to this week’s insight, let’s take a closer look at some of that “good” news about Bitcoin.
The announcement from Tesla’s Elon Musk was true to form – his form that is – in that it was unequivocally sensational in substance. It is a staggering decision for a publicly-traded company to invest $1.5B in shareholder capital into what can fairly be described as a speculative asset such as Bitcoin. Especially for a company like Tesla, whose core business is not in financial services or asset management.
In a different time, akin to the one that predated the pandemic, right-minded investors might have been horrified at this allocation of corporate capital, and the willingness to accept Bitcoin as a form of payment for products and services. However, in the present time, that’s clearly not the case. Subsequent to the news release Monday $TSLA actually popped on the open and closed above its previous day’s close from Friday. More interestingly, though, when mainstream news outlets like CNBC picked up Tesla’s announcement, Bitcoin’s price gapped-up for roughly a 12.4% gain The irony was striking: Bitcoin’s gap-up on the open substantiated the inherent volatility of the asset, the same volatility that should have made (in a logical world) Tesla’s stock gap-down.
In the context of Bitcoin as a form of payment, the news this past week spoke loudly to its prospects for adoption. Even though the noise was bullish, the signal was bearish. The “good news” from Musk and Tesla translated into short-term bad news for the crypto asset as a payment method. That Musk wouldn’t say when Tesla would start accepting Bitcoin as payment was also very telling.
The bottom line is that Bitcoin’s inherent volatility, which was on full display this week, makes it an unstable form of payment and the primary reason why businesses are not yet clamoring for the ability to accept it – yet. On the other hand, the signal for Bitcoin as a burgeoning, legitimate asset was unmistakenly bullish, though that may too have been lost in the noise.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC