Backing from Elon Musk’s Tesla sends bitcoin price rocketing
It’s been dismissed many times as a worthless asset, but the cryptocurrency is making fortunes.
9th February 2021 15:20
by Graeme Evans from interactive investor
It’s been dismissed many times as a worthless asset, but the cryptocurrency is making fortunes.
Whether you're the Sage of Omaha or that man from Newport whose laptop hard-drive is buried at the local tip, the “Elon Effect” driving today's latest surge in the bitcoin price is likely to have been hard to stomach.
The cryptocurrency soared to more than $48,000 at one point this morning after Elon Musk's Tesla (NASDAQ:TSLA) took bitcoin a step closer to widespread acceptance by signalling that it could soon be used as a form of payment for its electric vehicles.
The world's most valuable car maker also bought $1.5 billion of bitcoin and updated its investment policy so that it is able to hold alternative reserve assets. In doing so, Tesla's regulatory filing to the SEC provided a decent summary of why so many investors won't go near crypto assets.
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As Tesla warned: “The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties.”
These include the reliance on technology for the creation of the assets, which raises threats as diverse as malicious attacks through to “technological obsolescence”. It also pointed to uncertainty over future regulation or how accounting rules may be applied to assets currently considered indefinite-lived intangible assets.
American investor Warren Buffett, known as the Sage of Omaha, has been one of the fiercest critics of bitcoin, believing the currency is worthless. He told CNBC in an interview last year: “Bitcoin has no unique value at all. It doesn’t produce anything. You can stare at it all day and no little bitcoins come out. It’s a delusion basically.”
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Tesla also highlighted the potential for human errors or computer malfunctions that may result in the loss or destruction of private keys needed to access the assets. A Newport man knows about this, having asked his local council for permission to search the landfill for the hard-drive mistakenly thrown away in 2013 containing 7,500 bitcoins.
That haul is now worth more than £250 million, with the valuation accelerating after the price of bitcoin went through the $20,000 barrier as recently as December.
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One reason for the dizzying ascent has been more interest from larger institutions due to the currency's perceived appeal as a hedge against inflation that could follow massive government stimulus efforts in the United States.
BlackRock CEO Larry Fink also admitted in December that bitcoin could evolve into a global market, having three years earlier been a prominent opponent of the currency.
And PayPal has said its users in the United States can buy, sell and hold four cryptocurrencies through its platform, with the others being ethereum, bitcoin cash and litecoin.
Bitcoin is the largest cryptocurrency by value, having been invented by Satoshi Nakamoto in 2009. It is not issued by a central authority and works through a distributed ledger technology, known as a blockchain. Critics argue that bitcoin has a huge carbon footprint due to the energy consumption involved in bitcoin mining.
The currency also has a long history of fluctuating price movements, with a 70% crash following on from the high seen in 2017 after a wave of retail investor buying.
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