The Bitcoin Simulation

A discussion about Tesla’s $1.5 million Bitcoin investment, the recent growth of fast fashion and Bumble’s IPO.

Audio Length: 00:48:30

Audio Transcript: 

S1: This ad free podcast is part of your Slate plus membership.

S2: Hello and welcome to the Bitcoin simulation episode of Slate Money or Guide to the Business and Finance News of the Week.

S3: I’m Felix Salmon of Axios. I’m here with Emily Peck of Huff Post. Hello. I’m here with former journalist Anna Shamansky. Hello. Whose penultimate Slate money show this is. We will invite you to come up with some questions for her final show later in the show. But before we do that, we are going to talk about fast fashion and how it has done surprisingly well during the pandemic. We are going to talk about dating, which is a big business on the stock market. And we are going to talk about Tesla and why on earth it feels the need to be sitting on one point five billion dollars worth of Bitcoin. Fun conversations all coming up on slate money. So let’s start with Tesla buying one point five billion dollars of Bitcoin. Obviously, this is Elon Musk doing the thing he does best, which is jumping onto Meems, but beyond Elon Musk is meme Lord. And do you have a theory of the case like what the hell is going on here? And is this a sign of, like, extreme decay of late capitalism that you have companies doing crazy things like this?

S4: No, I think this is somewhat unique to Elon Musk. I think that this is likely as simple as the fact that Elon Musk has bought into the Bitcoin thesis or at least part of the Bitcoin thesis and believes that, hey, I’m going to take a percentage of my now relatively decent sized cash holdings and invest in this thing that I believe is going to go up significantly. And because it has gone up significantly in the past six months, he assumes it is just going to continue forever, just as Tesla stock has gone up during that exact same period of time and apparently forever.

S3: So let me unpack this a little bit. What we’re talking about is not where Elon Musk is investing his personal billion. Most of those are still in Tesla shares. And in SpaceX says, rather, we are talking about where Tesla is investing its cash. And there have been precedents in the past at places like Airbnb for companies to use their Treasury holdings, as they’re called, that cash holdings is a little bit of an internal hedge fund. Apple famously has a very secretive subsidiary in Nevada, somewhere that investors cash in credit instruments and it manages to eke out like zero point five percent on its cash holdings rather than zero percent. And you can see how a treasurer would want to maybe have a little bit of yield on this cash. But going from like I’m going to take a tiny bit of credit risk, too. I’m going to invest one point five dollars billion in Bitcoin. Seems to be a massive leap.

S4: Yeah, this is not cash management. This is speculation.

S3: And it’s something that companies do is speculate with their cash.

S4: No, no, not normally. Because, you know, again, this is not his cash. This is the company’s cash. This is fundamentally the shareholders cash. And the idea is that when necessary, you may also have to use that cash. And the other thing is this is kind of a wonky accounting thing. But if you invest in Bitcoin, then also if the value of Bitcoin goes down, you now have to mark down your cash. But at the value of Bitcoin then goes up. You don’t get to market back up. It’s it’s a very bizarre move.

S3: So the only other company that has really done this is this rather obscure shop called MicroStrategy. And they seem to have basically given up on being a company and they seem to have decided that what they want to do is just be a Bitcoin holding vehicle. And so they’ve bought a whole bunch of bitcoins. They put it on their balance sheet. And now if you want Bitcoin exposure by buying something on the stock exchange, you can just buy MicroStrategy stock. This is effectively an end run around the S.E.C. A lot of people have tried to create like exchange traded funds or French traded notes or something like that, which you can buy Bitcoin exposure on the stock exchange, the winkled. I have tried. Barry Silbert has tried. A bunch of people have tried. Everyone has failed. So my strategy is basically done. The Spack group here, he’s taken a listed vehicle which already reverse merger and reverse merged it into a bunch of Bitcoin. And now the MicroStrategy basically behaves like Bitcoin. So you can kind of see the logic there. Yeah, you know, I mean, if you want to buy Bitcoin on the futures, buy Bitcoin, then buy MicroStrategy. But for Tesla, there’s not even that logic. No one is. Buying Tesla is a way of getting exposure to Bitcoin.

S4: No, I agree, it makes very little sense and I think I would be really nervous about is that I think there is significant overlap between the significant amount of retail participation in Tesla and the significant amount of retail participation in Bitcoin. And the fear is that in the same way that they have recently gone up exponentially, both of them, I think they very easily could go down at exactly the same rates or very similar rates. The one nice thing about Bitcoin, if you were an asset manager, was that, well, you could say it’s not actually well correlated with other traditional assets. You think you could add it into your portfolio to reduce volatility overall because it’s not well correlated if you’re Tesla. That just makes no sense because it seems to be, especially recently, very well correlated.

S3: It’s my favorite chart. It’s not just highly correlated, but in fact, if you do that and I’ve done this three times now because I love this chart so much, if you chart the total market cap of Bitcoin against the total market cap of Tesla, the lines are directly on top of each other. It’s amazing how they are worth almost exactly the same amount and they have been for well over a year.

S5: What to make of that? I mean, so on Thursday, Elon Musk, the MIM Lord, tweeted the following. I had it written down on a card, but I lost the card. But luckily I have the Internet to help me here. He tweeted, Frodo was the underdog. All thought he would fail himself most of all. Then a picture of a ring and under the picture of the ring with all different cryptocurrency is ticker symbols or whatever on it. And then under the ring it says one coin to rule them all. So he tweeted that and then, you know, the price of Bitcoin jumped seven percent. So none of this makes sense to me in any rational way. It seems truly insane. And when Felix asked, is this some sort of would you call it late, late capitalism frenzy or insanity or just the sign that everything’s going south? I kind of feel that way. This is Bitcoin is doesn’t have any value. And as Anna and says all the time as a currency, it’s insane because it jumps around.

S3: You don’t want to die. It doesn’t it’s not a currency, although nothing. The other thing we should mention is the Elon Musk has announced at the same time that he announced that he was buying one point five billion dollars of Bitcoin. He also announced that he would be accepting Bitcoin as payment for his cars. Now, thanks. No, no. Yeah, OK, so I’m going to push back a little bit on that. In any economically rational world, this makes no sense. If you have a bunch of Bitcoin and you want to buy a Tesla, then you can just sell your Bitcoin and buy it. That’s how people have done it for years and that’s how people can continue to do it. And it’s no easier to just transfer your Bitcoin than it is to Bitcoin and buy the. This is true. On the other hand, there is a psychology here and a little bit about this in my newsletter this week that what Elon has done and really he’s the only car manufacturer who’s capable of doing this, is that he has aligned Tesla with Bitcoin. There are a lot of Bitcoin faithful out there, the models. And when they want to buy a car, you know, most of them, because at some point when they want to buy a car, that is now very clearly the Bitcoin car, the car that is associated in the public mind with people who like Bitcoin. And it is also the case that people don’t think of Bitcoin wealth as being real wealth. It feels unreal. And people who might not spend forty thousand actual dollars on a car might actually spend one of their Bitcoin on a car because it just feels like it was never really forty thousand dollars in between. There’s a funny psychology there. It makes no sense on a sort of rational economic level, but I do think that at the margin he might get one or two people to buy Tesla who might otherwise have gone out and bought a Lamborghini or something. But now, like Tesla is the cool Bitcoin car. But that’s not enough to justify a move of this magnitude.

S6: It does seem like a branding exercise somewhat on Tesla’s part. That framing actually makes a little bit of sense to me, like Elon Musk is associating himself with this thing that a lot of people like and hold and the people that like and hold it have money. So why not? It’s like kind of like how Subaru associated itself with like the LGBTQ community, and that’s been really good for them.

S5: So Elon Musk is associating himself with the crypto community.

S3: So, I mean, OK, that partially because I like the idea that the Tesla is to crypto boys as lesbians.

S4: That is pretty great. That is pretty great. So I think from Tesla’s perspective and from Elon Musk perspective, I can understand why that makes sense, but. For the holder of Bitcoin, it makes no sense because if you’re holding Bitcoin because you believe not that it’s going to hold its value, but you’re holding it for the speculative increase, that’s why you’re holding it. You think it’s going to significantly increase in value. So why on earth would you exchange it essentially for a Tesla which is going to significantly depreciate in value?

S3: OK, two two answers to that. One is that, like, there’s no such thing as holding for like you have to one, there’s no such thing as holding forever. But to like it’s the idea of like I win a free car. I made this like smart investment, however, many years ago and now I get a free car. It kind of feels better than I convert it into money and put the money into some other asset. And then I can put it into my retirement fund and maybe I can have something to live on in 30 years time. It’s like I get a free car so I can see that. Look, are you logically correct? Yes, but this is not you know, if you try to unpack the logic of the hotlist like that way lies madness.

S4: Well, the other thing that is very true, the other thing, though, I will say is that this discussion we’re having and Elon Musk’s statements are all based on this idea that what we’ve seen in Bitcoin since Natur last March is going to continue forever, as though what we saw previously in Bitcoin, where it declined significantly from the heights it reached in twenty seventeen, as though that will not happen again. Now, I don’t necessarily think Bitcoin is ever going to go to like zero again. I think it seems to be establishing itself in some way, but it’s unlikely to just keep going up and all of these individual investors are just going to happen to buy it at the right time, that it’s going to increase in value at the point that then they can go and exchange it for their Tesla like you’re going to hold it and you’re like, well, it’s going to be super volatile. But I think in 10 years it’s going to be significantly higher than I was. OK, maybe I can buy that. But if it’s anything more short term than that, it makes no sense.

S3: Now, if you’re on the short term investments, then then clearly you have to buy dogecoin. Yes.

S7: Clearly the sensible option, the sensible option does feel like Elon Musk is at the top of some grand pyramid scheme, like he’s going to be fine. Oh, he’ll land on his feet or go to Mars one way or the other. Or I will like I’ll wake up in 10 years and we’ll just be like, what was that about? Like, people really thought he was smart. Like, look what he was tweeting. Like, the scales will be removed from people’s eyes and it’ll be obvious that this is a delusion that we’ve all participated in.

S4: This is the I hope you like the John law of this period of capitalism.

S3: Like the thing about Elon is a he’s just you know, he’s smart in terms of like engineering smart like Tesla and SpaceX rockets and clever electric tunnel boring machines are clever on some level, you know, all the way back to the kind of work he did back on PayPal back in the day like it was clever. But beyond that, he is enjoying himself. And I remember a couple of years ago when he was clearly not enjoying himself and he was firing everyone at Tesla. And Tesla was three weeks away from running out of cash. And he was clearly extremely unhappy and. Now, you know, as often happens when you become the richest man in the world, like, you know, he’s a lot of those cares and worries have kind of melted away and he’s like. I’m going to have fun on Twitter. I’m going to have fun with my company. There’s lots of downsides to being a public company, like he wanted to take Tesla private and he wasn’t able to. And now he’s trying to find some kind of silver lining in having a public company. And this is one of the ways he can do that. And it’s kind of selfish and narcissistic on one level. But I think if you look at it as a guy who’s like I have a bunch of followers on Twitter and people who feel like they’re in on the joke in a kind of lull, nothing matters post-modern way, it starts to make a certain amount of sense.

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