Elon Musk boosts Bitcoin
Abraham George Macro View
The biggest news yesterday was Bitcoin made a new high. Why should that be news? As Bitcoin has made many new highs last year and this year. When the world’s richest man publicly confessed that his pet company Tesla has cashed in $1.5 billion to invest in Bitcoin prices went parabolic. No better person could have given such a big endorsement than Elon Musk. He has become such a cult personality in the corporate world and for the “new economy” that the market is just waiting to hear or read between the lines of anything that he says and react accordingly.
A few weeks back when all the WhatsApp confusion was going on he tweeted about moving to “Signal” and millions migrated to Signal from WhatsApp in no time. The other day he tweeted “who let the DOGE out” and the crypto currency Dogecoin went through the roof. If I am not mistaken it is up more than 100 pct since he made that comment.
I remember in the early 80’s there was some one like him whose words had tremendous impact on the markets. He was the chief economist of Salomon Brothers and his name was Henry Kaufman. Those were the days when Salomon Brothers was the biggest Bond house in the world. Their dealing room in New York was known as “The Room” . Kaufman ‘s comments had more impact on the markets more than any Fed official or government spokesperson.
One can imagine the amount of money Salomon Brothers could have been making positioning themselves ahead of his comments. Those days rules, regulations, scrutiny and technology were nothing close to what we have now. If you want to know more about the story of Salomon brother read the book “Liar’s Poker” by Michael Lewis. The same author of the book and movie “ Big short.”. No body has made financial journalism as interesting to read as Michael Lewis.
Let’s get back to Tesla and Bitcoin. Tesla also disclosed that it may make further investments in “alternative reserve assets” like digital assets , physical gold, and gold exchange traded funds (ETFs) as it sees fit. In other words, Tesla is saying that most of the savings it holds in US dollars , they will want to hold less of it. Tesla said that it plans to accept cryptocurrency payments in the future. For that the US treasury has cleared the way for banks to use cryptocurrencies for transferring money using the underlying blockchain technology.
This is the anti - central bank trade. Elon Musk is making a very big statement here. He has been the trend setter for many things that others were not willing to explore. But he has so far been a winner. For many he is “the man who has seen the future.” He is putting money into a scarce asset designed to have low inflation that came out of the GFC with the idea of working completely outside the traditional financial system . So it is the anti- central bank trade.
So far the biggest proponent of Bitcoin is the CEO of a company called MicroStrategy (MSTR) - Michael Saylor. He may not have the same following as Elon Musk but he is a darling of all Bitcoin investors. He is the most outspoken corporate CEO that I have listened to , with the idea of Bitcoin being the world’s future reserve asset. Watch his videos on YouTube. He may convert you to becoming a believer in Bitcoin. He has almost $1.2 bio of MicroStrategy’s funds into Bitcoin. Think most of that investment came last month. Cathie Wood of ARK investment is another “new economy” investor who has also invested in Bitcoin. Bridgewater’s Ray Dalio also had good things to say about Bitcoin and other cryptocurrencies.
I don’t think Musk is going all out on Bitcoin. $1.5 billion is a lot of money for all of us, but it’s less than 0.2% of Tesla’s current market cap ($820 billion). Musk is making just an asymmetric bet ( big rewards that outstrip the risks). In case he is wrong , it is not going to hurt him much. But the long term upside you may enjoy from owning at least some Bitcoin or cryptocurrency is so big that it dwarfs the risks.
Yesterday’s surge in Bitcoin happened only because Tesla disclosed in its annual 10-k filing with the SEC that it had bought a lot of Bitcoin last month. So all the Bitcoin followers and fence sitters were reacting to that yesterday.
The melt up scenario for Bitcoin will be if millions of companies, institutional investors and others decide to risk an amount that they are willing to loose, the upside can be much bigger than most of us can imagine. After all, there are only 21 million bitcoins that will ever exist.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.