The Breakdown - Tesla's Bitcoin Selling Shows How BTC Is More Than Digital Gold

Episode Date: April 28, 2021

Yesterday Bitcoin Twitter reacted in horror upon discovering that Tesla had sold 10% of its bitcoin. Elon has paper hands! Institutions will abandon us! The horror and scorn ran far and wide.  On today’s episode, NLW argues that: The sales proved to Tesla that bitcoin has deep liquidity That the combination of store of value plus upside plus liquidity makes bitcoin uniquely valuable as a treasury asset -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

They need to have cash-like assets that are nimble enough to take advantage to seize on those opportunities. But of course, as any business, they want to have their money working for them, not just sitting in an ultimately melting ice cube, as Michael Saylor would put it. Bitcoin was able to play that role for them. This is not some corporate treasury-forced profit-taking. It's an extremely mission-critical business need, taking precedence over long-term haughtling. Welcome back to The Breakdown with me. NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world.

The breakdown is sponsored by nexo.io and neared.org and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, April 27th, and today we are talking about why you shouldn't be stressed about Elon Musk selling $272 million in Bitcoin. Yesterday, oh, woe of woes, we were betrayed. Like Benedict Arnold come back to life to give away the heart of our country. Like the Red Wedding on Game of Thrones, but even more violent, we were betrayed. At least that's what you would have thought looking at Bitcoin Twitter yesterday. But to understand this, we need a little bit of context.

This entire leg of the Bitcoin bull market was sparked by Tesla's February announcement of $1.5 billion of Bitcoin. treasury. It also gave us one of the most iconic memes of the Bitcoin space. In retrospect, it was inevitable. It put the world's richest man and the internet's most prolific memester in our corner. It gave other massive corporations some pause that perhaps it wasn't just crazy micro-strategy doing this Bitcoin treasury thing. Now, of course, Tesla buying Bitcoin also flared up some additional tensions, the climate fud has been significantly worse since the announcement. Instead of seeing Elon's involvement as evidence that Bitcoin's energy impact has been overstated and fear-mongered, it instead proved to be confirmation to many that Elon has been full of crap about his commitment

to the environment from the beginning. Elon Musk is, in spite of his great wealth, a highly controversial figure. And so, of course, he brought that to Bitcoin. From within the Bitcoin community, it hasn't been all roses either. Many have taken umbrage at Elon's constant meaming around Doge. It just triggers too much 2017 PTSD of people legitimately shilling scam coins for some members of our community. But still, net net, it's pretty impossible to deny that Elon has represented a powerful ally in our corner. So what happened yesterday and why the sense of betrayal? Well, it came as a part of yesterday's Tesla earnings call. Buried in the deck was a slide that listed cash flows from investing activities. And six rows down, it said,

proceeds from sales of digital assets, 272 million. What, what, people said? Has Elon Rugg pulled us? Has Tesla actually sold Bitcoin? The short answer was yes. Yes, they had. On their earnings call, Tesla's CFO, Zach Kirkhorn, confirmed that they had trimmed Tesla's Bitcoin position by 10%. So record scratch stop moment here. We're now at like 5 or 6 p.m. yesterday afternoon, East Coast time, and Twitter is absolutely shitting a brick about this great betrayal. Their concerns. One, that it shows that Tesla actually has paper hands. Two, that it shows that institutions in general might have paper hands. Three, that from a perception standpoint, it will negatively impact Bitcoin, plus a whole host of other more personal critiques of Elon.

Almost immediately, however, another narrative started to emerge from cooler, more dispassionate heads. Nick Carter wrote, Elon rugged us because he cares about us and wants us to build character. Just kidding, that's not actually the response I'm talking about, although Nick did tweet that. Nick's real point was summed up when he said, Bitcoin, working capital that works for you.

I think we can agree to jettison that Bitcoin is a liquid talking point once and for all. Now, he was summing up a point from Larry Sermak from the block, who basically said that it was bullish that Tesla found enough liquidity to do this in the Bitcoin market. Meltem de Mirrors, the CSO of coin shares, put it even more succinctly. Quote, the fact that Tesla could liquidate $270 million of Bitcoin so quickly and so easily indicates Bitcoin market structure and depth is very robust.

Corporate treasurers can tick off sufficient liquidity when looking at Bitcoin to effectively diversify treasury holdings. Okay, so at this point, you could be forgiven for sitting there saying, yeah, yeah, you Bitcoin spinsters are very good at coming up with reasons why every ever. everything is bullish. This is clearly just your interpretation, blah, blah, blah. Well, hold on there, Chief. Let's zoom over now to a tweet from Dave Portnoy. Portnoy, if you'll recall, had that disastrous meeting with the Winklevoss twins last summer where they pitched him that gold was total crap because of asteroid mining. He had been kind of excited before and sold his Bitcoin

like a hot second later, and since then it has more than four-exed. This has led Portnoy to become an amazing meme. There are pictures of him with lettuce hands everywhere. To his great credit, and showing that he understands internet culture and, moreover, engagement, Dave has subsequently embraced the lettuce meme and as of yesterday bought back in, one full Bitcoin to be exact. Then he waited into this whole morass yesterday. When at 5.41 p.m., he tweeted, so am I understanding this correctly? Elon Musk buys Bitcoin. Then he pumps it. It goes up. Then he dumps it and makes a fortune. Listen, I own one Bitcoin, but Bitcoin is exactly who we thought it was.

Just don't be the last one hoddling the bag. This got a hell of a lot of attention, like 19,000 likes worth of attention, which even for Dave is a lot. But minutes later, the meme lord himself showed up to set the record straight. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. borrow against your digital assets at just 5.9% APR, earn passive income with yields of up to 12%, and swap between more than 75 market pairs with the instant nexo exchange. Try the nexo wallet app to get the whole 360 degrees of crypto banking.

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No, you do not. I have not sold any of my Bitcoin. Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on a balance sheet. In other words, Elon just said that exactly what Nick and Larry and Meltem and all the champions who said this wasn't a bad thing for Bitcoin were saying. And frankly, if you go back and read the Tesla CFO's full comments, a totally different picture emerges, so let's do that. Elon and I were looking for a place to store cash that wasn't being immediately used, trying to get some level of return on this, but also preserve liquidity. Particularly

as we look forward to the launch of Austin and Berlin, an uncertainty that's happening with semiconductors and port capacity. Being able to access that cash very quickly is super important to us right now. There aren't many traditional opportunities to do this, or at least that we found and in talking to others that we could get good feedback on, particularly with the yields being so low, and without taking on additional at risk or sacrificing liquidity. And Bitcoin seemed at the time, and so far has proven to be a good decision, a good place to place some of our cash that's not immediately being used for daily operations, or maybe not needed until the end of the year, and be able to get some return on that. And I think one of the key points that I want to make

about our experiences in the digital currency space is that there's a lot of reasons to be optimistic here. We're certainly watching it very closely. Tesla is watching how the market develops and listening to what our customers are saying, but thinking about it from a corporate treasury perspective, we've been quite pleased with how much liquidity there is in the Bitcoin market. So our ability to build our first position happened very quickly. When we did the sale later in March, we were also able to execute on that very quickly. And so as we think about kind of global liquidity for the business and risk management, being able to get cash in and out of markets is something that I think is exceptionally important for us.

So we do believe long term in the value of Bitcoin. So it is our intent to hold what we have long term and to continue to accumulate Bitcoin from transactions from our customers as they purchase vehicles. specifically with respect to things we may do, there are things that we're constantly discussing. We're not planning to make any announcements here. We're watching the space closely, so when we're ready to make an announcement on this front, if there's one to come, we'll certainly let you all know. So a few things actually come out of this. Whatever sensational headlines you read about

Elon and Tesla dumping their Bitcoin are simply not true. Another is validation of this proving liquidity point. It's very clear that both discovering and then demonstrating liquidity in the Bitcoin market actually means a great deal to this. company right now. Another point, though, however, is an emergent narrative that I'm seeing the very starting parts of that I think is so important. And it comes from this idea of a cash substitute that generates yield without sacrificing liquidity. When we talk about digital gold, one of the reasons that some people don't like that is that it limits Bitcoin to what gold was. This big, static, monolithic thing that, sure, while it held its value over time, even in the face of inflation,

wasn't very liquid, wasn't easy to move around, didn't have much upside potential. The digital and Bitcoin's digital gold gives it extraordinarily different properties than gold, which make it far more useful. And that's what Tesla proves. Tesla's having their cake and eating it too. This is a firm that is taking advantage of Bitcoin's growth dynamics not solely relying on memes of its store of value properties. And the context really matters for these guys. They're facing fundamental business challenges based on the strange times we lived in. In this short statement, the CFO identified two. One, this massive semiconductor shortage that is affecting businesses of all types, and two, port access.

These things are creating huge problems for their actual business line. What Kirkhorn is saying is that they need to have cash-like assets that are nimble enough to take advantage to seize on those opportunities. But of course, as any business, they want to have their money working for them, not just sitting in an ultimately melting ice cube, as Michael Saylor would put it. Bitcoin was able to play that role for them. This is not some corporate treasury forced profit taking. It's an extremely mission-critical business need taking precedence over long-term hoddling. And remember, the CFO of this company is still technically titled the Master of coin. All of which gets me to Nairaj Agrawal's tweet about the whole thing which I loved. He said,

The way Elon bought Bitcoin mentioning it like once, then managed the treasury like a normal company, treachery. As funny as that is, I do think it's worth diving now into a bigger question of what's next for corporate treasury holdings and what the implications will be. Bob Lucas took this as a chance to call out the notion underpinning super cycle theory that institutions will never sell. He tweeted, institutional will never sell was always the stupidest meme out there. I maintain the next four-year cycle bear market will be the worst of all because of them. The triggered responses so quickly shows me exactly how deep the bias runs. Institutions are in it for the trade, simple and not some YouTube story about the end of days. There are exceptions that most want to focus on exclusively.

This isn't a bearish tweet on today. Far from it. Same institutions will drive the price to dizzying heights. Just don't forget markets flow in cycles, ebb and flow. The same thing. same powerful force that drives it higher will have an equal reaction at the exits. American Hoddle, as he's want to do, put it even more crisply. This is why Supercycle is BS. Institutions have outside cell pressure. Nick Carter offers a different take on how institutions could actually make things more boring. On April 12th, Nick tweeted,

I'm not saying this is sound, but a lot of allocators target a specific quantity of risk as measured by volatility. So they will construct a BTC gold portfolio according to a defined level of risk sizing accordingly. More volatile equals smaller share of portfolio. Many of those same allocators have target bans. This means that once they have a position, they will aim to keep its share of their portfolio relatively fixed. So if BTC rallies, they take profits, and if BTC sells off, they buy. This is countercyclical and suppresses volatility. So if you combine Tendency 1 volatility targeting with Tendency 2 rebalancing, you get a suppressive effect on

volatility. Less volatility begets larger allocations, which begets less volatility, we call that reflexivity. TLDR, as these sorts of allocators become the marginal buyers, some evidence that this is the case already, Bitcoin could well be entering a new, more boring regime of lower volatility and fewer face-ripping rallies, and fewer gut-wrenching sell-offs. This time different, let's watch. In short, we don't know exactly what the new dynamics are going to look like with these big institutions. That's exactly what the point of this bull market is figuring out. In the meantime, I think you can take comfort that the overall trend line is not even close to broken. Take the JPMorgan news from yesterday that they're finally coming around and are going to offer Bitcoin products

to their wealth management clients. Also today, we learned that U.S. Bank is even deeper than the security deal from yesterday. First, NIDIG has selected U.S. Bank to administer their ETF should the proposal be approved by the SEC. Second, U.S. Bank has announced that they've chosen a crypto-custodian. although they wouldn't say if it was Nidig, even though they were announcing something about Nidig separately. Either way, U.S. Bank is the best-known brand of Bancorp, which is the fifth largest bank in the U.S. And it's clear with these moves that they're moving in big time. There is a risk in this space of being Pollyannish and not seeing risks and threats as risks and threats. However, Tesla's Bitcoin sale just doesn't qualify.

Instead, I would argue that Tesla's sale shows that Bitcoin is not just digital gold, that it has gold-like properties but also operates as this highly liquid, highly functional, highly useful asset. Tesla didn't have some weird board pressure to sell. They took advantage of Bitcoin's growth and then were able to take advantage of its liquidity to solve real business problems they had. It is very likely that this whole thing made them more, not less bullish. And as we read, they made it clear that they intend to keep accepting Bitcoin and growing

it and even intimated that there might be more things to come. So everyone, chill out and enjoy the long time. term trend. We're still discovering what this all means, but it's a heck of a ride. Until tomorrow, guys, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk. A live virtual experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more. Get an up close look at the boom in crypto, the surge in institutional investment in Bitcoin, the NFT,

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