Tesla's bitcoin move will spur more company purchases, drive price higher, Ark Invest says

Published Wed, Feb 10 20217:15 AM ESTUpdated Wed, Feb 10 202111:59 AM EST

Ark Invest believes Tesla 's big bitcoin purchase will lead to more corporate and institutional investor adoption, driving the digital currency's price higher and make it harder for governments to shut it down. "This is a pretty big tipping point that legitimizes bitcoin beyond just this crypto industry that for so long has just been beating the drum," Ark crypto asset analyst Yassine Elmandjra said. "Now we're getting major players that are considering this a worthy diversifier. I think this is going to be a very interesting catalyst that will encourage other corporations to consider this a strategic allocation." Tesla is the top holding in Ark Invest's flagship fund, Ark Innovation , which has seen more than $4.3 billion in inflows this year. In 2020, the fund posted a gain of 150%. Ark Invest CEO Cathie Wood is a longtime bitcoin bull. Elon Musk's Tesla announced Monday in an SEC filing it has bought $1.5 billion worth of bitcoin, which represents roughly 8% of the electric car maker's cash. The company said it bought the digital currency for "more flexibility to further diversify and maximize returns on our cash" and will start accepting payments in bitcoin for its products. The price of bitcoin jumped on the news and has hit an all-time high, topping $48,000. "When you're looking at widespread institutional adoption, one of the things we look at at Ark is who is actually adopting it. You've either had very forward-thinking asset managers, who historically have been on the right side of change ... or you have crypto native entrepreneurs," said Elmandjra. "But never have we seen a company or institution like Tesla, go from zero to 100 so quickly without any prior context or affiliation in bitcoin." Tesla is not the first company to add bitcoin to its balance sheet. Square bought $50 million in bitcoin in December, which represented about 1% of Square's total assets as of the end of last year's second quarter. MicroStrategy allocated its entire cash balance sheet into bitcoin in mid-2020 , which was about $3 billion in the digital asset. However, Ark Invest said when you look at the nature of Square and MicroStrategy and why they allocated their cash into bitcoin, it wasn't as "pure" of a decision as what Tesla has made. "MicroStrategy, you could argue is a struggling company attempting to remain relevant, and Square for the last five years has been strong advocating for bitcoin, and it makes sense in terms of their core business down the line," said Elmandjra. "With Tesla, not only is it a thriving company but it also had zero affiliation to bitcoin prior to this announcement." Ark estimates if 1% of every company in the S & P 500 's corporate cash were converted into bitcoin, then the asset's price would balloon by more than $40,000 from its current levels. If the cash level increased to 10% from each company in the broader stock index, bitcoin's price would increase by more than $400,000, the firm estimates. "I think trying to ban bitcoin today would really be an attack on the balance sheets of corporations, like a Tesla or Square, on funds, on banks, on investors," Elmandjra said in an Ark Invest webinar conducted on Tuesday. Government legitimacy Bitcoin is also getting more legitimacy from the attention being paid by governments recently, according to Ark Invest members. "For those who are concerned about bitcoin being shut down by governments, we believe that their decisions to issue their own [central bank digital currencies] is actually validating the space and lowering the risk of bitcoin being banned," Wood said during the webinar. Gary Gensler, President Joe Biden's pick to lead the Securities and Exchange Commission, is well versed on cryptocurrencies, Ark told its clients. While Gensler will likely push for regulation of bitcoin, his selection will bode well for the digital asset in the long term. "The very fact that this is being acknowledged as a potential threat to monetary policy is definitely a change of tune from what we've seen just a few years ago. Just this question alone goes to show how far bitcoin has come," said Elmandjra. In the U.S. specifically, Ark thinks it's going to be very hard to ban bitcoin, given all the interested parties, especially with corporations adopting bitcoin as a diversifier on their balance sheets. "The more bitcoin establishes itself, the harder it is to stop," said Elmandjra.

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"This is a pretty big tipping point that legitimizes bitcoin beyond just this crypto industry that for so long has just been beating the drum," Ark crypto asset analyst Yassine Elmandjra said. "Now we're getting major players that are considering this a worthy diversifier. I think this is going to be a very interesting catalyst that will encourage other corporations to consider this a strategic allocation."