Blockchain Bites: Tesla Drives $1.5B Into Bitcoin, Brian Brooks Comments on Monetary Debasement

Three stories

1. Tesla invested $1.5 billion of its cash reserves in bitcoin, according to a U.S. Securities and Exchange Commission annual report. The popular auto manufacturer said bitcoin offers “more flexibility to further diversify and maximize returns on our cash.” The company had more than $19 billion in cash and cash equivalents at the end of 2020.

  • Both Tesla’s stock and bitcoin’s price jumped on the news. Bitcoin moved up approximately 11% to more than $43,000 (approximately the price of a Tesla Model 3), setting a new record high. Some cryptocurrency exchanges experienced “technical issues” amid the rally.
  • Tesla also announced it will accept bitcoin for purchases “in the near future.”

Elon Musk, Tesla CEO and world’s richest man, is a late convert to bitcoin, having said recently, “I do at this point think bitcoin is a good thing.” He follows other corporate executives in embracing the hard-capped cryptocurrency amid an unprecedented period of a loose monetary policy during the coronavirus pandemic.

  • For instance, veteran hedge fund manager Bill Miller’s outfit may invest in the Grayscale Bitcoin Trust through its flagship fund, the Miller Opportunity Trust. The fund is seeking indirect exposure to the crypto market by putting as much as 15% of its $2.25 billion into the regulated trust. (Grayscale is a CoinDesk sister company.)

2. Ether futures have launched on the Chicago Mercantile Exchange (CME), one of the world’s most active commodities exchanges. The opening price of a CME ether futures product was $1,669.75, about $70 over spot at the time.

  • Industry commenters believe this first regulated ETH futures product will increase demand for the cryptocurrency, and could have an appreciable impact on its price. Ether is the second-largest crypto by market capitalization.
  • “A futures product serves many purposes to many different types of investors and institutional traders,” CME’s Director Tim McCourt said on CoinDesk TV. “The price movement we’ve seen is further reinforcing customer demand.”
  • CME was the first exchange to offer bitcoin futures, in December 2017, an event that preceded a year-long bear market, according to CoinDesk market reporter Omkar Godbole. Former U.S. Commodity Futures Trading Commission Chairman Chris Giancarlo said the Trump administration approved these contracts in an effort to “pop” the bitcoin bubble.

3. Binance has temporarily suspended deposits in Nigerian naira – the country’s currency – in response to a Friday letter from Nigeria’s central bank instructing local banks to identify and close all accounts tied to cryptocurrency platforms or operations.

  • On Sunday, the Central Bank of Nigeria (CBN) issued a five-page statement saying its earlier action to curtail crypto use was merely a reiteration of a long-standing policy. CoinDesk’s Sandali Handagama reported the directive comes just months after protesters in Nigeria used bitcoin to raise funds after authorities reportedly shuttered their bank accounts.
  • India, too, is exploring a potential ban on cryptocurrencies. Despite fierce public opposition to a draft bill, the Indian government is now reportedly looking to fast-track the effort.

At stake

“In retrospect, it was inevitable.”

Perhaps to Elon Musk’s chagrin, the former acting head of the U.S. Comptroller of the Currency, Brian Brooks, thinks the latest corporate treasury to buy into bitcoin is a bigger story than just one maverick founder and an electric car manufacturer.

“For people who are invested in bitcoin it’s exciting news,” said Brooks, who left the OCC last month. “For people who are looking at the rest of the world it’s actually a little bit scary news.”

Speaking on CoinDesk TV’s inaugural broadcast, the former regulator put the recent trend of U.S. corporations investing a portion of their cash holdings in bitcoin within an inflationary context.

“Bitcoin is a more stable source of value over the long haul, potentially,” Brooks said. He noted the U.S. money supply has risen 25% since the start of the pandemic and could be up 40% compared with a year ago if stimulus efforts go through.

“That’s crazy, right?” Brooks said.

Tesla piling over $1 billion into bitcoin is a massive story. Given the Musk acolytes, those who believe the world’s richest man is ushering humanity into its next phase of techno-evolution, the auto company’s bitcoin buy could have a bigger effect on the “Overton window” than just Square and MicroStrategy.

It’s still an open question whether cash is really being debased. For years, fears of inflation have mostly missed the mark – as has the Federal Reserve’s target for a 2% inflation target.

Still, Brooks sees the value in cryptographically secured currencies like bitcoin. “My thesis is that there is a thing about decentralization, it is both a freer technology and it is also a more sound money strategy than central bank-governed money printing approaches, which is what we’ve done historically,” he said.

While this view may sound extreme, Brooks doesn’t think he’s alone among regulators. He noted that Michael Barr, who could take Brooks’ former role at the banking regulator, shares a “similar thesis.” It’s not a partisan issue, either. There are those wielding power on both sides of the aisle who believe cryptocurrencies and blockchain could play a major role in the future of finance.

In short, for Brooks, it comes down to a divide between who is a “tech adopter,” or an innovator, and those who aren’t.

“Crypto and fintech and banking are all converging here, and blockchain is the infrastructure of the future. So we’ll all be talking about this for a long time to come I expect,” Brooks said.

Quick bites

  • Nic Carter responds to criticisms of Bitcoin’s energy consumption. (CoinDesk Opinion)
  • A U.S. Senate bill looks to create an equivalent of “suspicious activity reports” for tech firms. (CoinDesk)
  • A DeFi whale watcher has surfaced. (CoinDesk)
  • The Defiant digs into last week’s $11 million Yearn exploit. (The Defiant)
  • NBA Top Shot Sells $2.6 Million in NFTs in 30 Minutes (Decrypt)
  • Casper joins China’s “digital belt and road.” (CoinDesk)

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