The Elon Effect – Companies Now Racing for a Piece of the Bitcoin Pie

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Since its creation in 2009, Bitcoin has taken the investing community on a wild ride. We’ve experienced both the euphoria of bull runs and the despair of bear markets. Although it has certainly been a wild ride to get where we are now, it finally feels like Bitcoin is getting the attention and recognition it deserves.

At times, there is criticism of Bitcoin for being too volatile, which often results in inexperienced investors losing money as they buy the top of a cycle and then capitulate after not being able to withstand a market correction. Volatility is also one of the major reasons why the SEC has yet to approve a Bitcoin ETF. However, it’s important to remember that we are still in the very early days of this new asset class. A great way to analyze Bitcoin’s growth trajectory is by trying to figure out where it might fit within the technology adoption life cycle.

The technology adoption life cycle is a sociological model that describes the adoption or acceptance of a new product or innovation. Visually, you can think of the cycle as a normal distribution that begins with innovators, followed by early adopters, then the early majority, before finally reaching the last two groups of the late majority and laggards. A critical point within the life cycle occurs when the early adopters cross the chasm that gradually leads into the early majority. It can be challenging to figure out exactly what percentage of people own Bitcoin, but based on one survey, it appears to be somewhere between 10-15%, which would make them the early adopters of the digital currency.

Now, the question is – what’s the catalyst that can propel Bitcoin across the chasm so that the early adopters can further spur Bitcoin’s growth? It appears a tweet between MicroStrategy’s Michael Saylor and Tesla’s Elon Musk may be just the catalyst that was needed.

The tweet that changed everything

There can be no denying that Bitcoin has come a long way since its early days. Despite the incredible growth, one hot topic of conversation has been whether institutional capital would eventually flow into the space. That question is no longer asked because Michael Saylor and Elon Musk have set off a buying frenzy that may be just the beginning of things to come.

On his Twitter account, Saylor said,

“Bitcoin is a swarm of cyber hornets, the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster and stronger behind a wall of encrypted energy.”

It’s clear that Saylor is a fan of the asset with its scarcity and its ability to serve as a hedge against a devaluing dollar. He is also putting his money where his mouth is. At the end of last year, MicroStrategy announced that it purchased 29,646 Bitcoin for roughly $650 million, at an average price of approximately $21,925 in 2020. The company didn’t stop there, though. Just last week, MicroStrategy raised another $1.05 billion to buy more Bitcoin.

Saylor’s belief in Bitcoin has extended beyond converting MicroStrategy’s treasury. He is also serving as an ambassador for Bitcoin by attempting to onboard other Fortune 500 corporate executives and technology pioneers. In fact, one particular Twitter exchange between Saylor and Elon Musk may have dramatically changed the course of Bitcoin forever.

On December 20th, 2020, Saylor tweeted at Musk,

“If you want to do your shareholders a $100 billion favor, convert the $TSLA balance sheet from USD to BTC. Other firms in the S&P 500 would follow your lead and in time it would grow to become a $1 trillion favor.”

Musk responded with a meme hinting that Bitcoin was indeed tempting. Well, as it turned out, the temptation was too much for Musk. CNBC announced in early February 2021 that Tesla had purchased $1.5 billion in Bitcoin and also had plans to eventually accept the digital currency as payment.

While Saylor certainly has been leading the charge and might even be considered the face of the movement, there can be no denying that Elon Musk is a transformative figure within technology circles. His words carry a great deal of weight, so when he speaks, people listen. In Saylor’s initial tweet to Musk, Saylor correctly predicted that companies would follow Musk’s lead if he decided to buy Bitcoin. Well, Musk did, and the companies followed.

Tesla paved the way for institutional capital

Since Tesla announced that it had purchased $1.5 billion worth of Bitcoin, it has felt like a non-stop barrage of news from institutions indicating they’ve either purchased Bitcoin or are strongly considering getting involved. In fact, even CNBC’s Jim Cramer stated that it would be irresponsible for corporates not to put any Bitcoin on their balance sheet. Well, companies certainly are taking that advice to heart and choosing to do the responsible thing and, at the very least, consider adding Bitcoin. Below are just a few examples of companies throwing their hat into the Bitcoin ring.

On February 10th, 2021, Twitter’s CFO said the company was considering adding Bitcoin.

On February 13th, 2021, Morgan Stanley indicated that it may invest in Bitcoin through its $150 billion investment arm, Counterpoint Global.

On February 17th, 2021, BlackRock’s chief investment officer, Rick Rieder, announced on CNBC’s Squawk Box that the asset manager was starting to “dabble” in Bitcoin.

Also, on February 17th, 2021, The Motley Fool announced that it was buying $5 million worth of Bitcoin.

In addition, Mastercard announced that it would begin letting merchants accept crypto payments at some point this year. While the company wouldn’t specify which cryptocurrencies would be accepted, this is an extremely positive development for the asset class and further indicates that Bitcoin is here to stay.

The race for a piece of the Bitcoin pie

It should be obvious by now that companies are starting to recognize Bitcoin’s potential as a digital currency and a store of value. One of the things driving Bitcoin’s recent value is the notion of scarcity. The maximum supply that can ever exist for Bitcoin is 21 million, and with some of that being lost or burned throughout the years, the cap is likely even smaller.

At the end of 2020, analysts at Glassnode indicated that Bitcoin was becoming harder to buy, as liquidity was declining across several exchanges. As more and more institutions accumulate Bitcoin as a store of value to hedge against devalued fiat, it is certainly possible that liquidity will continue to dry up. The lack of liquidity also leads to a fragmented market, meaning that crypto traders may not be able to execute at the best available price if they only maintain one exchange account. Therefore, it’s usually a good idea for traders to consider having accounts at all the major exchanges, such as Coinbase, Kraken, Binance, Bitstamp and Bitfinex, and then using a platform like Cove Markets or Voyager to be able to manage them in one easy-to-use interface.

The idea of scarcity has often been mentioned but hasn’t really been taken to heart until recently, due to the increase in fiat printing around the world. At some point, there is likely to be a race to accumulate this asset, and Elon Musk will have played a significant role in that. Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater Associates, recently said that Bitcoin is “one hell of an invention.” Well, Ray, here’s hoping we are in for one hell of a ride.


Thomas Meyer is the head of marketing for Cove Markets. Previously, he was an equity derivatives trader for Peak6 and Spire Trading. He has been trading cryptocurrency since 2016 and enjoys traveling in his free time.

 
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