Elon Musk pays $1.5 billion to buy bitcoin, paying attention to inflation hedge
Gold and decoupling… Value fluctuates depending on how many institutions will recognize it in the future
If you plan to eat 10 times, be prepared for 10 pieces.
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Tesla CEO Elon Musk announced a $1.5 billion purchase of Bitcoin. That’s 7.7% of Tesla’s cash equivalents. / Photo: TED
– The’Hyman Minsky’ model has become a new talk amid the recent investment boom caused by a surge in liquidity. It is named after American economist Hyman Minsky (1919-1996), and is often cited to describe sudden asset collapses, such as the 2008 financial crisis. It is explained that a panic eventually arises as the value of assets soared as the adventurous investment aimed at high profits became popular and then gradually expanded to unbearable levels. You can think of it as a model that shows the process of bubble creation, development, and extinction. The last time people came up with this model was when the Bitcoin bubble went out in 2018.
And in February 2021, a new model is in vogue among cryptocurrency investors. It is a so-called’Elon Musk model’. According to Hyman Minsky’s model, after passing the peak of the bubble, a plunge appears leading to’fear’ and subsequent’selling’. However, an unprecedented event occurred when attempting to explain and predict this spike in bitcoin price by applying the Hyman Minsky model. ‘Tesla Beam’ or’Musk Beam’ appeared.
It is known that Tesla bought $1.5 billion worth of bitcoin in a report filed with the Securities and Exchange Commission (SEC) on February 8 (local time). Shortly thereafter, the price of Bitcoin surged. It has 50,000 dollars in front of it, and in Korea it has lightly exceeded 50 million won. Musk’s influence doesn’t just go beyond Bitcoin. When Musk said a word, asset prices were dancing, so on Wall Street, the word’Elon Market’ is also circulating.
Tesla bought Bitcoin with about 7.7% of its cash assets ($190.3 billion at the end of 2020). Even if the investment fails, it is not enough to threaten Tesla’hometown’. Still, many are not happy with Tesla’s investment decision. Shortly after the news of Tesla’s purchase of bitcoin, Gary Black, an analyst from Goldman Sachs executive, tweeted, “We sold all Tesla shares we had in 2019.” Tesla itself is a risky asset, but this is because it is too risky because it has invested in bitcoin, which is more risky. If so, what on earth did Tesla or Musk think to buy bitcoin? Will Tesla be okay if bitcoin prices go down like 2018?
Will Tesla survive even if Bitcoin collapses?
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Tesla CEO Elon Musk hinted on Twitter a week before the purchase of bitcoin that it was’#bitcoin’. / Photo: Musk Twitter capture
– In terms of amount alone, $1.5 billion is not a burden for Tesla. The problem is the market reputation. Even if it doesn’t, it’s Musk, which is marked as’heresy’ on Wall Street. If it turns out to be a bad investment decision, it could have an impact on Tesla’s share price. In fact, after the news of Tesla’s purchase of bitcoin was announced, JPMorgan predicted that “it is unlikely that other large companies will invest in bitcoin following Tesla.” The reason is that Bitcoin’s price volatility is too high. According to JPMorgan, companies usually invest their internal assets in safe bank deposits, money market funds (MMF) and short-term bonds. The price change rate of this asset is only 1%. If 1% of this portfolio is filled with bitcoin, the price change rate of the entire portfolio increases to 8% due to the annual price change rate of bitcoin, which reaches 80%. Unless investment is a business purpose, it is an analysis that few companies will choose to take this investment risk.
Could there be a company other than Tesla that makes such reckless decisions? It’s not because of Tesla. MicroStrategy was the first to buy bitcoin among NASDAQ listed companies. When the fact of buying bitcoin was first announced in September of last year, it gave a considerable shock to the market. CEO Michael Sailor (CEO) expressed the reason for investing in bitcoin to the media at the time. “I realized the terrible reality of sitting on a slowly melting $500 million ice cube.” $500 million is the company’s cash-like asset, and melting it means that inflation causes the cash value to disappear.
Sailor’s decision to invest in bitcoin was in indiscriminate quantitative easing according to Corona 19. Governments of each country have released large amounts of money to minimize the economic shock caused by Corona 19, which led to a drop in money prices. According to the International Monetary Fund (IMF), governments of each country have invested a total of 12 trillion dollars in 2020 alone to overcome Corona 19. In 2021, the ratio of government debt to gross domestic product (GDP) in developed countries is expected to be 125%, exceeding the debt ratio of major countries (124%) according to the cost of war during World War II. Immediately after the 2008 financial crisis, the debt ratio was 89%. It is literally spreading money into the market at the level of’copy’.
According to Sailor, 15% of the annual cash value is evaporated. In other words, as the price of money falls, we come to the conclusion that in order to maintain the value of the company’s in-house reserves at a certain level, it is necessary to invest in assets that can hedge inflation. When it comes to inflation hedge assets, you will of course think of gold, but in time for the Fourth Industrial Revolution, Bitcoin has become a new repository of wealth.
Ray Dalio, the founder of Bridgewater, the world’s largest hedge fund, paid attention to Bitcoin as a store of new wealth. He carefully expressed his views on Bitcoin in an investor letter in late January entitled’My Thoughts on Bitcoin’. The price of bitcoin will rise to some extent, so follow me all. It is not a level of confidence, but there are various risk factors such as regulatory issues, but he explained that as much as a new repository of wealth is needed, bitcoin should be watched.
According to Dalio, the best store of wealth in the past was government bonds. The problem is that in 2010, the share of global government bonds with a yield of less than 1%, which was only a single digit, has recently increased by nearly 80%. In addition, the US real government bond interest rate has entered the negative range. It was argued that since it is no longer possible to hedge inflation by investing in government bonds, it is necessary to find an alternative asset and pay attention to bitcoin as one of the alternative assets.
Tesla also revealed the reasons for investing in bitcoin in the SEC report as follows. “We have improved our investment policy to make our cash equivalents more flexible, diversified and maximize profits. We (Tesla) will invest a portion of the cash in alternative reserve assets. So we invested a total of $1.5 billion in Bitcoin under this policy.” Tesla’s investment in bitcoin can be seen as dangerous. However, it cannot be concluded that the method of sticking to the old method is an investment method that does not take any risk. Perhaps investing the way you always do with inertia is a risky decision that will reduce your cash value.
Institutions that recognize bitcoin are soaring, prices are strong
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Bitcoin real. The more it is recognized as an eligible investment, the higher its value can be.
– Meanwhile, contrary to JPMorgan’s concerns, companies other than Tesla have also begun to show interest in buying bitcoins. Twitter’s Chief Financial Officer (CFO) said in an interview with the media that “it wasn’t decided, but we’re considering holding Bitcoin.” In addition, mayor Francis Suarez of Miami, Florida, said, “We are also considering investing in Bitcoin for some funds managed by the city government.”
When it comes to’wealth storage’, it is gold that comes to mind. Bitcoin corresponds to’digital gold’. However, if bitcoin is simply a digitalization of gold, why does the price of gold and bitcoin move differently in recent years? Why is bitcoin price in sync with stocks (S&P500) recently? You can get hints from ArcInvest. This company is the hottest Wall Street manager among’Seohak ants’ investing US stocks. It operates an active exchange-traded fund (ETF), which is famous for investing in companies with technology that values’disruptive innovation’. Among the top 10 U.S. ETF achievements last year, three ETFs of Arc Invest were listed. The ETF that Seohak ants bought the most this year, excluding general stocks, is ARKK.
ArcInvest seems to have predicted Tesla’s purchase of Bitcoin. Cash Wood, its CEO, told the press at the end of January that “in the future, more companies will put this hedging tool (Bitcoin) on their balance sheet.” “Especially tech companies that understand technology and are familiar with technology. I predicted. In another interview earlier, he said, “I don’t think there is a better way to hedging inflation than Bitcoin. Many large companies are asking if it is appropriate to put a large amount of cash into Bitcoin or other cryptocurrencies.”
In this year’s report (Big Ideas 2021), which contains ArcInvest’s long-term investment prospects, three chapters are directly or indirectly related to Bitcoin among 15 investment themes. ‘4. Digital Wallet’, ‘5. Bitcoin’s fundamentals’, ‘6. Bitcoin: Waiting for institutional entry.’ “Institutional investors can have a significant impact on the price of bitcoin,” the report predicted. “If all S&P companies invest 1% of their cash in bitcoin, it will increase the current price by an additional $40,000.”
In addition, the report emphasizes that institutional investors investing in stocks, bonds, gold, crude oil, and real estate should allocate part of their assets to bitcoin. Institutional investors should consider the opportunity cost of ignoring bitcoin rather than putting it into a new asset class. As a result of the simulation, the volatility is the least when bitcoin is incorporated by 2.55% of the entire portfolio. If 6.55% is included, the expected return can be maximized. If institutions add 2.55% to their portfolio, the price of bitcoin can rise to $200,000, and if they add 6.55%, it is expected to rise to $500,000.
The logic structure for ArcInvest’s price prediction depends on how many institutions recognize Bitcoin as a qualified investment asset, rather than how much’digital gold’ Bitcoin will play in the current market. In other words, the more institutions accept Bitcoin, the higher the price of Bitcoin. The reason that the price of bitcoin has been exceptionally strong in recent years regardless of the gold price is due to the rapid increase of institutions that accept bitcoin.
Except for Bitcoin, the existence value cannot be verified
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– – Unlike in 2018, the market leadership has shifted to institutions. It is clear that these institutions are investing in Bitcoin. Inflation hedge assets. Unlike individuals”don’t ask investment’ in 2018, it approaches from the perspective of portfolio diversification. It is not a hit-and-run investment, but a long-term investment.
The problem is altcoins other than Bitcoin. In order for the price to continue to rise, coins must prove their worth. In the current market, Bitcoin is almost the only coin that has clearly proven its existence. Some institutions have started to add value to Ethereum as a platform, but this is still only a few. Other altcoins are, in fact, doubtful of their existence.
Unfortunately, existence value and price move separately. From the outside, I am envious of “I must have made a lot of money by raising a lot of bitcoins”, but’deuterated people’ who have invested in coins for a long time are suffering from severe’coin depression (coin depression)’ these days. It was because I ate twice as much with what I was holding, but the coins held by others increased 10 times. At the symbo of “I can’t stand hungry but can’t stand hungry”, I have no choice but to turn my eyes to another skyrocketing altcoin. Then, at the end of the’Fireplace’, altcoins that have no value in existence fall to hell.
If you plan to eat 10 times, you should be prepared for 10 pieces. It is said that history repeats itself twice. Once into a comedy, once into a tragedy. In order not to end in tragedy, the past must be used as a teacher. At the end of 2017, four of the top 10 coins by market capitalization were pushed out of the top 10. In addition, Ethereum, which held the top 10 (2017-2018 bad market high of 2437,000 won), Bitcoin Cash (5617,000 won), Ripple (4925 won), Litecoin (535,000 won), Cardano (1995) Won) and others are still not recovering their peak until now (as of February 14), more than three years later.
Reporter Goran Jo Indi [email protected]
