Tesla’s Move On Bitcoin And A Potential AML Motivation

Last night I was actually out to dinner with friends. Under normal circumstances that would be hardly worth reporting, but it was a notable milestone in a return to post-vaccinated normality. Sometime during appetizers, my phone began buzzing wildly and I couldn’t resist checking the barrage of alerts. My wife originally gave me the stink-eye because she thought I was sneaking a peek at the Yankee game, but the conversation changed when I announced that Musk was no longer accepting bitcoin for the purchase of Teslas. 

On the surface, this is huge news. Cryptocurrency’s most visible booster appeared to be turning his back on bitcoin, and price fell precipitously. Reading a bit deeper into the story, the move appeared to be for an honorable reason. It would be a neat fix for the apparent contradiction about a manufacturer of zero-emissions vehicles also encouraging adoption of a cryptocurrency that requires enormous amounts of energy. Musk also acknowledged that neither he nor the company would be selling their bitcoin holdings, just simply not allowing customers to directly exchange bitcoin for cars. 

My friend and I both took a cynical view of the announcement, however. Elon Musk has proven himself to be the greatest stock promoter in history – something I say as admiration – and he didn’t achieve that status without the use of hyperbole and occasional misdirection. I find it unimaginable that he suddenly discovered that bitcoin mining was a huge energy hog. Musk’s well-publicized pronouncements about Tesla’s purchase of over $1 billion in bitcoin and the company’s acceptance of bitcoin as a medium of exchange provided a significant lift to an already buoyant market. Now, in relatively recent succession, he has backtracked on both. 

Late last month, during Tesla’s quarterly earnings announcement, it was revealed that the company realized $100 million in profit from sales of some of its bitcoin holdings. It was portrayed as a test of the cryptocurrency’s liquidity, but I took a dimmer view of that explanation. As I wrote at the time, I viewed the bitcoin sale not as a liquidity test, per se, but as a test of whether bitcoin could be used to add incremental profit to TSLA’s bottom line. It would be similar to a tactic used by GE in the heyday of Jack Welch, except that Mr. Welch never had the ability to influence the bonds that made up the bulk of GE Capital’s investments in the way that Mr. Musk can influence crypto markets. Besides, wouldn’t the original purchase of over $1 billion worth of bitcoin be enough of a test of that market’s liquidity? I believe that Tesla’s statement on bitcoin sales was factual, but that the true motivation was obfuscated.

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