Current Affairs

Issue

Electric car maker Tesla has announced that it invested $1.5 billion in bitcoin, making it the biggest investment by a mainstream corporation into the most popular cryptocurrency. 

 

Background

The company also plans to start accepting the digital currency as a payment option for its products.

 

Details

• The company pointed out that it updated its investment policy to be more flexible in further diversifying and maximising returns on its idle cash.

• As a part of this plan, it said it would invest in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds, and other assets.

• Crypto traders and investors are seeing the investment as a huge step in favour of institutional adoption of bitcoin. 

• While Tesla’s may be the biggest investment in bitcoin by a consumer facing company, it is noteworthy that it does not hold the largest quantity of bitcoin for a single entity’s corporate treasury.

 

Investment in bitcoin

• The first advocates of bitcoin did not intend for it to be used as an asset, but with the mushrooming of exchanges where it could be easily purchased and sold.

• Market participants say that the huge volatility in the price of bitcoin without any major fundamental reason is a factor that retail investors should be cautious about.

 

Risks associated

• The prices of digital assets have been in the past and may continue to be highly volatile, including as a result of various associated risks and uncertainties. 

• Their reliance on technology for their creation, existence, and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks.