Mar 24, 2021 - Economy

Elon Musk's bet on bitcoin as payment

Photo illustration of Elon Musk holding a giant bitcoin

Photo illustration: Sarah Grillo/Axios. Photo: Maja Hitij/Getty Images

The short list of what you can buy with bitcoin is about to get a tad longer, courtesy of Elon Musk.

Why it matters: Musk is going where other companies have failed — trying to transform bitcoin from a speculative investment to a form of payment. It hasn't taken off in the decade-plus that the digital currency has been around.

  • What's different about Musk: He's been tapping into cryptocurrency enthusiasts — many of whom are part of his fandom.

Catch up quick: Tesla now accepts bitcoin as a form of payment, Musk said in a a string of early-morning tweets.

  • Musk said bitcoin payments will be retained by the company as bitcoin, not converted back to dollars.
  • Tesla is also setting up its own "nodes," — which means it's contributing computing power to help validate transactions.

What they're saying: "This is quite possibly a gimmick, but it really could be Elon Musk pulling in more early adopters," Craig Irwin, an auto analyst at Roth Capital, tells Axios.

Between the lines: Bitcoin has been a better investment vehicle rather than an easy form of payment. One reason: volatility.

  • Buyer beware: Tesla warns (in all-caps) that if a customer makes a return, the refund in bitcoin "might be significantly less" than it was at the time of purchase.
  • Plus, a tax hit: "If the bitcoin that you use to buy a Tesla has gone up tremendously in value, you're going to owe quite a lot in capital gains tax," on top of what you already paid for the bitcoin, Kristin Smith, executive director of the Blockchain Association, tells Axios.

The big picture: The overlap of bitcoin investors who will use it to buy a Tesla would be very small on a Venn diagram, says Sam Abuelsamid, an auto research analyst at Guidehouse Insights.

  • "Most of the people who are interested in buying a Tesla more than likely don't even know what bitcoin is," Abuelsamid says.

Remember: Musk and his company are a cultural phenomenon — but its product is still niche. Tesla sold 500,000 cars out of the 64 million vehicles sold worldwide.

  • Meanwhile, legacy automakers are biting at Tesla's heels as they foray deeper into electric vehicles.

The bottom line: Tesla said this was coming last month when the company announced it was putting $1.5 billion of its cash pile into bitcoin.

  • Musk has also been engaging (trolling?) the crypto crowd for weeks on Twitter in the form of memes.
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