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If S&P 500 companies invest 1% of their cash in Bitcoin, look for BTC at $400,000

The recent Bitcoin (BTC) price actions point at one of two scenarios: A bubble in the making or a price explosion to new uncharted territories

Tesla may have timed its $1.5 billion purchase of Bitcoin to distract from its China troubles Tesla’s investment is about 0.05% of the $2.79 trillion of cash held on the balance sheets of S&P 500 members Only 1.3% of economic transactions came from merchants in the first four months of 2019

The recent Bitcoin (BTC) price actions point at one of two scenarios: A bubble in the making or a price explosion to new uncharted territories.

In a recent filing with the US Securities and Exchange Commission (SEC), Tesla announced that it has purchased $1.5bn worth of bitcoin which helped push the price of the cryptocurrency past $48k per coin. Tesla’s recent bitcoin investment amounts to about 8% of the company’s cash reserves.

Hedgefund manager and “Big Short” investor Michael Burry questioned Tesla’s Bitcoin investment and sounded the alarm on Dogecoin’s record price in a series of tweets last Monday.

“Chinese regulators summon Tesla on quality issues as consumers complain about quality … but $TSLA bought $BTC,” he said adding: “In my mind’s eye, (there is) so much #digitalconfetti.”

Burry thinks Tesla may have timed its $1.5 billion purchase of Bitcoin to distract from its China troubles.

Burry also took aim at Dogecoin in another tweet. The cryptocurrency, which was created as a joke, soared to a record high this week after Musk tweeted about it. It now commands a $10 billion market capitalization.

“We are in a blow-off top in all things,” Burry continued, referring to a chart pattern that shows a steep increase in an asset’s price and trading volume, followed by a rapid price decline.

“Markets have now bubbled over in a dangerous way,” he said in an earlier tweet.

Burry hinted in yet another tweet that he expects a market crash in the coming months.  

Or the opposite might happen.

Read: Tesla or Bitcoin? Two ground-breaking assets of the “COVID-era”

Read: The horrors of forgotten Bitcoin passwords and the billions of dollars lost

Raising the bubble to $400k

Disruption investor Cathie Wood and her team at Ark Invest had been modeling for more companies to use bitcoin as an alternative to cash on the balance sheet.

“We have been expecting institutions to start moving into Bitcoin and other crypto assets, but primarily bitcoin,” Wood told Yahoo Finance Presents recently.

According to Ark’s Big Ideas for 2021, if all S&P 500 companies were to allocate 1% of their cash to bitcoin, its price could increase by approximately $40,000. If those companies moved 10% of their cash to bitcoin, Ark sees the cryptocurrency climbing by $400,000.

At the end of last year, Tesla had over $19bn in cash and cash equivalents according to its fourth-quarter and full-year financial results, making the investment in Bitcoin near 8% of the total. 

Tesla’s investment in BTC makes up about 0.05% of the $2.79 trillion of cash and cash-equivalents held on the balance sheets of S&P 500 members, according to data compiled by Bloomberg.

Ark Invest: Big Ideas 2021

Wood called Square and MicroStrategy’s earlier bitcoin moves bullish for crypto and a roadmap for public companies to deploy bitcoin as a legitimate alternative to cash.

“What surprised me and us generally was to watch MicroStrategy put all the cash on its balance sheet into bitcoin. But, then you saw Square put 1% of all of its assets in Bitcoin and I think you’re going to see more of that.”

“One by one, corporations will add Bitcoin to their balance sheets and it couldn’t get bigger than Tesla,” said Vijay Ayyar, head of Asia Pacific at cryptocurrency exchange Luno in Singapore. “Imagine if 100 companies start putting even 1% into Bitcoin, what that is going to do to demand and supply.”

Will this happen?

Tesla CEO Elon Musk has long been a proponent of the power of cryptocurrencies and in the past, he has taken to Twitter to share his thoughts on bitcoin. More recently though, he added #bitcoin to his bio on the social network which helped increase bitcoin’s price by as much as 20%.

In addition to buying $1.5bn in bitcoin, Tesla also revealed that it will soon start accepting payments in the cryptocurrency for its products on a limited basis, making it the first automaker to do so. The bitcoin purchased by the company will provide it with the liquidity it will need once it starts accepting cryptocurrency payments.

But while Tesla announced plans to accept Bitcoin for purchases, hardly anyone uses the cryptocurrency for anything beyond speculation. Data from New York-based blockchain researcher Chainalysis Inc. showed that only 1.3% of economic transactions came from merchants in the first four months of 2019.

Still, you have to wonder. Is a snowball effect in the making?