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.

I view yesterday’s announcement in a similar light. Yes, the company is accurate in saying that it will not accept an environmentally unfriendly currency as a means of exchange, but I believe that the motivation is being obscured. As I wrote in the wake of the Coinbase offering, bitcoin found its original use case as a means of facilitating illicit transactions. While a wide range of companies now accept bitcoin as a legitimate store of wealth and means of exchange, there are undoubtedly many who still use it for more nefarious purposes. That use case could be creating an inadvertent anti-money-laundering (AML) problem for TSLA.

As a regulated person in the financial services industry, I have attended regular AML training. And yes, I’ve paid attention. The Financial Crimes Enforcement Network (FINCEN) of the US Treasury Department defines money laundering this way:

Money laundering is the process of making illegally-gained proceeds (i.e. “dirty money”) appear legal (i.e. “clean”). Typically, it involves three steps: placement, layering and integration.

Each of those steps is intentionally difficult, deliberately creating obstacles for a criminal to spend his illicit profits, whether in bitcoin or cash. If one could use his bitcoin to directly purchase an expensive auto, that would make the process of integration a little easier. I suspect that this ability to buy Teslas with bitcoin caught the attention of someone at FINCEN as a potential loophole in AML activity.

To be crystal clear: I am NOT accusing Elon Musk or Tesla of facilitating money laundering! What I am suggesting is that the company was quietly warned that any sales of cars for bitcoin would be subject to major scrutiny. Considering that TSLA barely breaks even on car sales (the vast majority of its profits come from the sale of regulatory credits, and now bitcoin), any incremental hassle would simply not be worthwhile. It’s also not clear that they have even sold any cars for bitcoin anyway. FINCEN inquiries need to be confidential, so yesterday’s announcement would serve the dual purposes of changing behavior without revealing the regulatory catalyst for the change while at the same time putting an environmentally friendly spin on it.

Ultimately this provides little change to the investment rationales for either TSLA or bitcoin. It’s just another day of Elon Musk dominating the financial news cycle. But I am finding it to be a fascinating exercise to see if there is a hidden motivation behind TSLA’s recent operational reversals.