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#ElonMusk just bought $1.5B of #Bitcoin (#BTC) for #Tesla (#TSLA). Bitcoin is TWO of #ARKInvest‘s #BigIdeas2021 and #CathieWood has a lot of great things to say about it. Will institutions increase demand in other cryptocurrencies like Ripple's XRP, Litecoin, Ethereum, or… #Dogecoin? In this video, I discuss the convergence of these hugely disruptive innovations and their implications for the future of both, Tesla and Bitcoin!
The news gods gifting us Elon, Bitcoin, Tesla all in one place. It almost sounds like a mad lib of business media at this point. But Tesla in its annual 10K announcing that it has purchased one and a half billion dollars worth of Bitcoin. The company also says that it plans to begin accepting the cryptocurrency for payments for its vehicles in the near future. And let's begin our discussion there.
Is Tesla a car seller or a hype beast? What is this company doing?
Well, that escalated quickly. Whether you're watching this video because you're interested in ARK Invest's Big Ideas for 2021, or you're wondering why the heck Tesla would put 1.5 billion dollars of Bitcoin on its balance sheet, this video is for you. In part one of this Big Ideas miniseries, I covered deep learning, the next generation of data centers and the rise of virtual worlds. Those first three big Ideas are core to ARKW, ARK Invest's fund themed around the next generation of Internet applications and computing. The number one position in that fund is Tesla.
The number two position, as of this news is Grayscale Bitcoin trust. This is not a coincidence. This is the convergence. This Yahoo Finance interview poses a lot of the questions I think everyone is asking right now. So let's hear them out and spend the rest of the video trying to make sense of Tesla buying $1.5 billion of Bitcoin.
It's Tesla a car seller or a hype beast? What is this company doing here? Let's also, keep in mind, Tesla ended the fourth quarter with over $19 billion in cash. But even still, did Elon must contact his top ten shareholders to discuss this move. I would say probably not. And if you're a large shareholder in Tesla, you probably had a good year and you're feeling pretty good. But do you want to see Tesla spend $1.5 billion even considering Treasuries or yielding next to nothing? Cash is yielding nothing.
Do you want to see spend this money that they have raised in the past that is so precious to this company? Go out there and spend this money on a volatile asset like Bitcoin? Come on. And then, last not least, does this change how big corporate America thinks about Bitcoin and their payment structure? If I have a phone bill, am I going to be paying in Bitcoin? I think that's some of the things here you want to be thinking about. But again, if Bitcoin loses, if it goes to zero, there goes $1.5 billion down the toilet for Tesla.
And I don't know if that's a good place to be.
All right, these are all pretty fair questions. Let's lay them out as the outline for this video. Is Tesla a car seller, a hype beast or something else entirely? How should shareholders of Tesla, or, for that matter, other companies and institutions feel about these big companies adding Bitcoin to their balance sheet? And finally, what exactly is Bitcoin? Is it really ready for this level of hype and institutional investment? And what are the odds that Bitcoin actually ever goes to zero? Okay, part one, what exactly is Tesla? Your time is valuable.
So let's just get to the point. ARK Invest focuses all of their research on five major innovation platforms: DNA sequencing, energy storage, robotics, artificial intelligence, and blockchain technology. The convergence is this idea that these things are starting to overlap more and more. For example, in this episode, all of them, except for DNA sequencing, are converging as a result of Tesla purchasing $1.5 billion of Bitcoin and making it a core part of its long-term future. Just to drive the point home, let's go through the same thought exercise we went through in the previous Big Ideas video.
Since Tesla is ARK Invests largest holding by far, let's see how it would map onto these clusters. Here's how I would weigh it on here. In my opinion, Tesla is a world leader in energy storage, industrial robotics in various fields within artificial intelligence, all three of which are necessary to unlock full self-driving capabilities, launch their autonomous ride-hailing network, and provide the world with mobility as a service. Once these three things are successfully combined we'll see a major disruption to every market sector any of these innovations touch.
Let's add a fourth. Tesla now owns your time spent traveling from point A to Point B. They know how long that is, and a lot about you as a person since Tesla's can connect to the Internet, and you can imagine logging into your Tesla through a Facebook or a Google account or any login you already use today. So Tesla recommends you the perfect playlist from your Spotify or your Netflix or your Tesla Infotainment dashboard or whatever. It's tailored not only to you, but to the duration of your trip this time.
And it can be not just music and movies, but maybe it's games that Tesla knows can get completed before you have to leave the car. If you can pay less for an experience like that than the current cost of an Uber, why would you use anything else?
Now imagine if the games you play could earn you reward points for stores that you pass on your trip while helping Tesla fill out its own mapping database. Oh, yeah, and those reward points can be redeemed for things like supercharging uses or Bitcoin. Tesla is not just a car seller, and it's not a hype beast. mega cap, it's not just a hype beast anyway. It's an advanced robotics, energy storage and artificial intelligence megacap company trying to dominate the international autonomous ride-hailing market and provide mobility as a service.
First question down.
I get why, Tasha, as supporters of Bitcoin, you would be happy to see this. But what about as shareholders of Tesla? Is this what?
What is Tesla get out of it? You really want to see Elon Musk tweeting about Dogecoin, which is sort of a joke of a cryptocurrency. And now Bitcoin… Is he just looking for publicity?
This actually ties in pretty nicely with the report that we just put out, our Big Ideas report. First, my colleague Yassine, he's our crypto expert. We've actually done quite a bit of research on this in the past, and Tesla is not the first company to do this. We've seen this with Square. We've seen this with Microstrategy using Bitcoin as corporate cash, especially if you're doing business in many different countries with many different foreign currencies. This could be, instead of dealing with the competition and the risk, the treasury risk, you can instead do this with Bitcoin.
So we think it makes sense, certainly from a corporate cash standpoint. And actually, we've heard some analysts say that if 1% of all the cash from the companies and the S&P 500 were to be converted into Bitcoin for corporate treasury purposes, this could actually increase the price of meaningful amount by about $40,000. Tesla put roughly 8% of their cash into this. So that's meaningful. From the payment perspective, we've done a lot of of work on the ride-hailing space. We think this is an opportunity that should be measured in the trillions.
So if Tesla is operating a ride-hailing service globally again, they'd have to build out that payments function to make it work. So you can imagine that Bitcoin would be useful again in that case, as they go into foreign countries and operate there.
So this $1.5 billion dollar Bitcoin purchase is not just a meme. Sorry Dogecoin. It makes sense for international companies like Square, PayPal and Tesla to hold a universally transactional asset like Bitcoin. And as for our second question:
Do you want to see Tesla spend one $5 billion even considering treasuries are yielding next to nothing? Cash is yielding nothing. Do you want to spend this money that they have raised in the past that is so precious to this company? Go out there and spend this money on a volatile asset like Bitcoin? Come on.
Hey, that's a good point. In addition to everything Tasha Keeney just mentioned about Bitcoin's benefits, treasuries are yielding next to nothing, and cash is yielding nothing. And nobody wants to be holding billions of dollars in an asset that's slowly losing its power. Not even the richest man in the world. There are actually a few other great benefits for big companies and institutions to move some of their money to Bitcoin.
We believe that the institutional behavior and moves recently have been fascinating. We have been expecting institutions to start moving into Bitcoin and other crypto assets, but primarily Bitcoin, the most secure of the blockchains. Because, if you look at the correlation of Bitcoin's performance relative to any other asset class, it has the lowest correlation. Meaning if you buy some Bitcoin, you will further diversify your portfolio and increase your returns with lower risk. Right? So that's why institutions look for that low correlation. Bitcoin has it. And so that's clear.
We have ten years of history now. Then you saw Square put 1% of all of its assets in Bitcoin, and I think you're going to see more of that. We didn't expect that. What we did expect was because of the low correlation of returns, institutional investors to move in. The most surprising one to me thus far has been Mass Mutual. It put a hundred million dollars into its general account. Now its general account is enormous. So a hundred million dollars is something like 0.001. But what that move told us is Mass Mutual is very conservative and very highly regulated.
And so it had to jump through many more regulatory hurdles than I thought would have been possible by now. So I think that is a seal of approval. And then, of course, you have the institutional infrastructure moving into place, whether it's with custody, and everyone knows a lot about Fidelity being out there in terms of wanting to custody Bitcoin in particular.
So Bitcoin has a lot of great benefits, increased returns with the lower risks, since Bitcoin's price is fundamentally uncorrelated with the broader markets. Decreased risk due to mainstream adoption, meaning all the cool kids like Square and PayPal and now Tesla are already doing it. So the infrastructure to transact in Bitcoin is already being built out. Increased demand from brokers and financial institutions like Fidelity seeking out ways to hold and exchange Bitcoin in particular, and increased confidence that it's a financially responsible asset to invest in, since very conservative and highly regulated firms like Mass Mutual are willing to jump through extra regulatory hoops to hold it.
Mass Mutual probably didn't jump through those same regulatory hoops to hold Dogecoin. Okay, so we understand that Tesla is much more than a car seller, and we understand there's a lot of benefits for Tesla and other big international companies and institutions to be holding Bitcoin. Two questions down, one to go.
When we actually think about this, is Bitcoin ready for institutions? Bitcoin is only it's roughly a 600 billion dollar market cap. So not even half the size of Apple or Amazon, right?
Does it put it into perspective? And yet it has a very big idea, I think a much bigger idea than Apple or Amazon.
Whoa. Bitcoin is much smaller than Apple or Amazon. It's a very young asset. Remember, people compare Bitcoin to gold. Gold has been a store of value for something like ten thousand years, while Bitcoin has only been around for about ten. Is Bitcoin really ready for institutions? Can Bitcoin actually go to zero? Should we be worried about institutions buying Bitcoin in the same way we would be if they bought billions of dollars of stock in a company that was only ten years old. Here's what Yassine Elmandjra, ARK Invest's crypto-asset analyst, has to say about Bitcoin as a transactable currency and store a value
in a recent interview with Dave Lee on investing, I'll leave a link to the full interview in the description below. It's really a great listen.
Being at ARK, which we're mostly focused in the public equity space, the analogy that you bring to Tesla or high growth stocks is often the analogy that's tied into Bitcoin. Right? It's like, how do you value Bitcoin? Like you can value a stock. And the simple answer is you can't and you shouldn't. And the framework by which you can understand Bitcoin's value should not at all be driven by analogies to understanding the equity space. So there is no cash flows in Bitcoin, and so you can't figure out a way to have some sort of reconciliation to a balance sheet like you can have on Tesla and justify whether at any given point Bitcoin is overvalued or undervalued.
And that the risks… It's not necessarily riskier than a high growth stock. It is just much different in its value acruable behavior, and that's really what it comes down to. So where I agree with you is demand. So its value is exclusively and you're like, partially, I say exclusively driven by demand, relative to supply. That is the only thing that's going to drive Bitcoin's value, and it is the willingness to hold that asset.
This point is incredibly important. Bitcoin has a fixed supply by design. 21 million bitcoins will exist when they're all done being mined. You can't dilute Bitcoin like shares of a company by offering more down the road. This whole video so far has been making the case for increased institutional demand of Bitcoin. When you have an increase in demand for something in limited supply, its value goes up. So by design, as long as there is institutional demand for Bitcoin, Bitcoin cannot go to zero. Okay. Back to Yassine.
That is the only thing that's going to drive Bitcoins value, and it is the willingness to hold that asset. Now, there are people who argue that Bitcoin has no intrinsic value. I'd argue that the very concept of intrinsic value is relatively limited, especially in this context. Rather, what Bitcoin has are intrinsic properties that might render utility and therefore value. And in the case of Bitcoin, like you mentioned, Bitcoin's utility is that allows people to store outside of the currency system. And we spent the last hour discussing Bitcoin's value proposition.
That is something that you can really only get in Bitcoin. So for that reason, there is a clear demand driver for why you want to hold Bitcoin, right? Now, the second point is, okay. Naturally, if the only demand lever for Bitcoin or the only value lever for Bitcoin is volatility, then people get out of the asset, it's going to crash and people get into the asset it's going to appreciate and that's it. Really , Bitcoin's volatility actually highlights the credibility of its monetary policy and its ability to have demand be that sole value driver.
So I want to just debunk that Bitcoin is volatile and therefore unusable, by saying that Bitcoin is volatile because it has explicitly chosen free capital movement and an independent monetary policy and foregone that fixed exchange rate. And by forgoing that fixed exchange rate, then you have massive fluctuations in the price. And so does that mean that Bitcoin can't be valued as an investment or it's riskier as an investment? I would say the riskiness comes from just the relative nascency of the investment, right? It's just that it's a ten year…
No, I wouldn't say it's a stock that's been around for ten years. It's a ten year asset. If you look at gold, that's a multi-thousand year asset. So the risk comes in just the relative immaturity of the asset.
So the real risks of Bitcoin just come from it being so young and not as ingrained in society as, say, gold. The volatility of Bitcoin is as much an opportunity as it is a risk, because of that same volatility what you buy low and sell high, not just in dollars, by the way, but literally buy Bitcoin today, and then transact smaller and smaller pieces of Bitcoin or Satoshis directly for goods and services as Bitcoin's value increases with demand. Now that we align on what Bitcoin is, or at least the small piece of what it does, we can tackle the second big Idea. With Bitcoin being so young, how would it react to such a huge spike in demand from institutions?
Again, if Bitcoin loses, if it goes to zero, there goes $1.5 billion down the toilet for Tesla. And I don't know if that's a good place to be.
Spoiler alert: it's not going to zero. Here's Cathie Wood explaining the specifics of how Bitcoin's price could react as more institutions adopted to a group of fund managers during her recent Big Ideas overview for ETF Trends. She didn't have a lot of time to talk and she didn't have all 112 slides of the Big Ideas report. So I've gone through and added visuals to match what she's talking about. You may see some slides that you don't recognize. That's because I went through and pulled slides from all the previous Big Ideas as needed.
Links to Big Ideas from 2017, 2018, 2019, 2020 and 2021 can be found in the description below. They're all awesome and worth the read. Okay, over to Cathie Wood on Bitcoin preparing for institutions.
Bitcoin, more in the fintech realm. We're seeing more mature companies like PayPal, enabling the buying and selling of Bitcoin on its platform as cash out does as well. Well, if companies in the SMP 500 were to put 1% of their cash into Bitcoin, that would increase the price of Bitcoin by $40,000. Today, it's close to 30,000. So that's more than a double right there. If we saw 10%, of course that would add 400,000. And I just told you, MicroStrategy has put all of its cash in, perhaps emerging markets will be faster in terms of adoption.
But we have been very surprised at how quickly this has happened in the United States. Institutions are going to have a significant impact on Bitcoin's price. We're seeing all kinds of evidence today. I just gave you some about corporate cash. And just within the last month, they have allowed banks to actually become nodes on any public blockchain so that they can enable much less expensive and efficient settlement. So that is, again, a little faster than we would have expected. So we believe that here you can see that if our analysis on how institutions will look at allocating to this space is correct, institutional involvement could increase the price of Bitcoin.
Again, it's 30000 now, by 200000 if they want to minimize volatility, to 500000, if they want to maximize their sharp ratios. So quite a bit of work. Yassine Elmandjra, our analyst, has two white papers. And I should mention all of our analysts have white papers, more extensive white papers on our site on most of these topics.
Whew. We've covered a lot of ground on the convergence of some of the most disruptive innovations on the planet, spanning at least five Big Ideas, depending on where you draw the line. And again, that line is fuzzy and only getting fuzzier. That's the whole point, since both Tesla and Bitcoin are mooning, let's have Cathie Wood bring us back down to Earth.
Bitcoins, the equivalent of market cap or network value is a little over $700 billion, and many people with it having doubled from 20000 to 40000. Those sound like huge numbers. Actually, it's only a little over 700 billion. What does that mean? Well, Tesla is over 800 billion. These are both very big ideas. Some of the biggest ideas I have ever come across in my investing lifetime, which has been a long time. So I've been in the business more than 40 years. Couldn't be more excited about all of the innovation taking place now.
Never seen anything like it. And I really do think some wonderful days are ahead.
The future is exciting, and I'm excited to keep sharing it with you. This is Ticker Symbol: You. My name is Alex, reminding you that the best investment you can make is in you.
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