On Monday’s news that Tesla was buying $1.5 billion in bitcoin, the largest cryptocurrency surged above $48,000 for the first time on Tuesday. It traded as high as 48,226.25, according to CoinDesk, before closing at $47,390.38, still up 7.25 percent.
At the same time, there is a heated debate about whether big companies like Apple will follow Tesla’s lead in bringing bitcoin onto their balance sheets. Some investment banks, including Royal Bank of Canada, think it is only a matter of time.
But don’t expect other big companies to follow Tesla Inc. ‘s (TSLA) decision to bring bitcoin onto its balance sheet, according to JPMorgan Chase & Co.
“The main problem with the idea of mainstream corporate treasurers following Tesla’s lead is the volatility of Bitcoin, and Tesla’s move is too bold for others to follow,” the strategists, led by Nikolaos Panigirtzoglou, wrote in a report. But they say Tesla’s move has brought attention to the trend.
Tesla disclosed on Monday that it has invested $1.5 billion in Bitcoin and intends to start accepting the cryptocurrency as a form of payment. The company’s announcement sent bitcoin to an all-time high, with the price briefly passing $48,000 on Tuesday.
Experts are now debating whether the high-profile move will have a ripple effect across the industry, prompting CFOs at other public companies to make similar investments.
Under normal circumstances, listed companies need to take into account the volatility of assets when buying assets. Corporate fiscal portfolios are typically stuffed with bank deposits, money-market funds and short-term bonds, which means annualized volatility — that is, volatility over a year — hovers around 1%.
A 1% increase in Bitcoin allocations “would result in a significant increase in overall portfolio volatility,” Morgan Stanley strategists wrote. With bitcoin’s annualized volatility as high as 80%, such an allocation could mean that the portfolio’s volatility would rise to 8%, they said.
But fans are heartened by Tesla’s move into crypto, believing it pushes digital assets further into the mainstream. After the announcement, longtime cryptocurrency investor Mike Novogratz said that soon “every company in America” would accept bitcoin as payment.
“No matter how many companies end up following Tesla’s lead, this week’s announcement will no doubt change bitcoin’s near-term trajectory abruptly, as it has boosted inflows that have helped bitcoin break above $40,000,” JPMorgan analysts wrote. How long the rally lasts may depend on whether “less speculative” institutional money — such as those flowing into the popular Grayscale Bitcoin Trust — is invested.