Buy a Tesla with Bitcoins, I don't think so

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Earlier this week, Telsa announced that it will soon accept Bitcoin as payment for cars. This along with Tesla's purchase of $1.5B of bitcoin sent the price of the cryptocurrency through the roof. But does it make sense for customers to pay for a Tesla with Bitcoins? I don't think so. Let me elaborate.

In a previous article, I mentioned that if the end goal for Bitcoin is to become the currency of use for the entire planet then something probably has to go disastrously wrong with the institutions behind our current system — government backed fiat currency. That's a bold bet to make and I don't believe it will happen. I find it hard to believe Bitcoin will replace even weaker currencies. 

The fundamental problem for Bitcoin as a currency and as a way to pay for a Tesla has to do with the very thing lots of people like about it—namely that the supply of Bitcoin is controlled and limited. Because the supply is limited, when demand for Bitcoin rises (because, say, people are convinced they can get rich quick by buying it), then the value of Bitcoin is going to rise as well. So, if you believe your Bitcoin is going to become more popular, then it’s foolish to spend it on a pizza or a Tesla for that matter: you should hoard it and then sell it once its price rises. And since you can get along perfectly well without spending Bitcoin, there’s never been anything pushing people to stop hoarding. The more people hoard Bitcoin, treating it as a speculative asset, the less appealing it seems as a currency.

For now, I am not going to spend a Bitcoin on buying a Tesla because - while I love a Tesla- a Tesla depreciates in value and I expect a Bitcoin to increase in value. Elon Musk previously talked about Teslas becoming fully autonomous and hence will be offered as ‘for profit’ transport. When this is realized then a Tesla stops being a consumption asset and becomes an investment one that pays for itself. When this happens, I will be happy to spend a Bitcoin on a Tesla because I will be replacing one investment with another. Until then, sorry Elon, no Bitcoins from me. 

For Tesla, it's a sweet and smart piece of business to accept payment in Bitcoin. It collects payment in coins which increase in value over time. Can it get better than this?

As mentioned previously, I do see strong applications for Bitcoin as a crypto-asset (store of value) but not as a currency. So while it makes sense for Tesla to accept Bitcoins because each coin value is likely to increase as people continue to hoard, it doesn't make sense - at least for now - for the customer to pay for a Tesla with a Bitcoin.

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

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