Well, Tesla Inc. (Nasdaq: TSLA) CEO Elon Musk is at it again, tweeting a Lord of the Rings-themed meme comparing Bitcoin to … a mythical ring known to wield incredible power and corrupt the hearts of men?
Frodo was the underdoge,
All thought he would fail,
Himself most of all. pic.twitter.com/zGxJFDzzrM
— Elon Musk (@elonmusk) February 11, 2021
I’m not entirely sure what Musk’s point was here. I don’t believe that bitcoins need to be destroyed in the fires of Mount Doom to prevent the tyrannical rule of Sauron over Middle Earth. Though he’s right on one aspect, Bitcoin has emerged as the gold standard among cryptocurrencies.
At any rate, Musk is doing a lot more than posting memes these days. He’s been actively buying cryptocurrencies, and his baby — Tesla — just recently converted $1.5 billion of its cash hoard to bitcoin. Tesla also announced that customers would be able to pay for their new cars using bitcoin.
Bitcoin is still too volatile as a medium of exchange. Most large multinational companies have armies of analysts and traders that help them navigate currency risk. The forex market has existed in some form for millennia, and the infrastructure is in place to reduce risk by using things like currency futures or swap contracts.
There is a nascent market in bitcoin futures. Tesla could, in theory, hedge its currency risk by selling bitcoin futures to hedge the value of customer bitcoin deposits. But that seems like a lot of work for relatively little value.
Major Players Are Jumping In
Maybe I’m digging too deep because Tesla isn’t the only major company going big in cryptocurrency:
Already this week in institutional crypto adoption:
– Tesla buys $1.5 billion of Bitcoin and will accept Bitcoin payments
– Mastercard to allow merchants to accept cryptocurrency payments
– Amazon to create digital currency for Prime members in Mexico
It's only Wednesday. 📈
— Ryan Watkins (@RyanWatkins_) February 11, 2021
MasterCard’s acceptance of crypto payment is a major step in mainstreaming the asset class. And Amazon is now potentially joining Facebook, IBM and other major multinationals by getting into the crypto game itself.
Beyond the price volatility — which is hard to take at times — cryptocurrencies are not easy to buy and safely hold. Yes, it’s easier than it was a decade ago when the key to your Bitcoin was stored on your computer’s hard drive and could disappear forever if your computer died.
But it’s still not something you can hold in a “normal” bank or brokerage account. You have to use something like Coinbase or PayPal. And while that’s not a deal-breaker for the young and tech-savvy, big institutional money isn’t likely to be comfortable using an upstart custodian. Or at least that used to be the case.
For another look at how you can get into crypto, look no further than my colleague at Banyan Hill, Ian King. His Next Wave Crypto Fortunes service is helping his readers take advantage of the crypto boom — click here.
Now, BNY Mellon, one of Wall Street’s oldest banks, will offer Bitcoin custody to its clients:
— Cointelegraph (@Cointelegraph) February 11, 2021
Cryptocurrencies Aren’t Going Anywhere
So, what does all of this mean?
To start, cryptocurrencies appear to be here to stay. This isn’t necessarily an indication that Bitcoin’s epic rise will continue. That’s a conversation for another day. But the concept of the cryptocurrency — a decentralized currency not tied to any central bank — is mainstream now.
It may still be a while before we buy Big Macs and Frappuccinos with bitcoin, but that’s not as crazy as it sounded just a few months ago.
To safe profits,
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.