Should Apple invest $1bn in bitcoin?

9 Feb 20213.13k Views

Image: © DedMityay/Stock.adobe.com

As Tesla revealed its $1.5bn investment in bitcoin, RBC Capital Markets released a report citing the cryptocurrency as an opportunity for Apple.

On Monday (8 February), Tesla revealed in its annual report that it had bought $1.5bn in bitcoin. The company also said that it would soon accept bitcoin as payment for its electric vehicles.

In a filing to the US Securities and Exchange Commission, Tesla said that the company “may acquire and hold digital assets from time to time or long term” and that it may or may not liquidate bitcoin received as payment upon receipt.

This bitcoin investment follows a recent update to Tesla’s policy that was made to give the company more flexibility to “diversify and maximise returns on our cash that is not required to maintain adequate operating liquidity”, the company said in the filing.

Bitcoin going mainstream

Word of Tesla’s investment in bitcoin sent the cryptocurrency’s value even higher than its recent surges.

From the start of 2020 to the close of the year, the price of bitcoin rose as much as 224pc. The sharp increase has continued into 2021, with Tesla now seen as responsible for a record high this week of more than $47,000.

At this peak value, an entry-level Tesla Model 3 would cost less than one bitcoin.

‘If Tesla starts accepting bitcoin as a form of payment, it will give the digital currency further legitimacy’
– FAWAD RAZAQZADA

The move by Tesla has been hailed as a tipping point for bitcoin becoming mainstream.

Other familiar names such as AT&T and Microsoft have accepted payments in bitcoin. However, these purchases are made using a third-party processor. In this format, payments made by transfer from a digital wallet are converted to a fiat currency, such as dollars, which is transferred to the receiving company. There are also payment cards that convert cryptocurrency into fiat currency to enable a transaction.

Last year, online payments service PayPal announced that it would enable users to buy, hold and sell cryptocurrency directly from their PayPal account. Initially launched for PayPal account-holders in the US, this brought bitcoin, Ethereum, Bitcoin Cash and Litecoin directly to PayPal digital wallets.

Reuters reports that PayPal will settle these transactions through Paxos Trust Company, meaning that neither PayPal nor the seller will hold any of the virtual coins. Tesla, however, may be willing to accept bitcoin directly. Experts cited by Reuters suggested that the company could create its own cryptocurrency processing system to accept bitcoin and liquidate the payments whenever the company chooses to do so.

“Tesla is going to be a major player in the auto industry and if it starts accepting bitcoin as a form of payment, it will give the digital currency further legitimacy,” wrote ThinkMarkets analyst Fawad Razaqzada. “As more and more companies start accepting Bitcoin, this will only lead to further increases in demand in a market which is limited in supply. Therefore, the long-term outlook on Bitcoin remains bullish even if it is starting to look quite expensive in fiat currency terms.”

The crypto opportunity for Apple

The same day as Tesla’s SEC filing, RBC Capital Markets reported that Apple could immediately gain market share by launching a mechanism for buying and selling cryptocurrencies.

Support Silicon Republic

A research report from the global investment bank suggested that Apple should create a crypto-exchange within Apple Wallet in order to unlock a multibillion-dollar opportunity. The RBC report even suggested that Apple could attract users to the service by buying $1bn in bitcoin itself, much like the Tesla move.

RBC analyst Mitch Steves said that such an initiative would require a limited R&D spend from Apple with potential to raise more than $40bn in annual revenue.

The report found that Apple could present a stronger proposition than exchanges offered by PayPal and Square thanks to its famously secure, closed ecosystem.

It also suggested that such a move by the major US tech firm could make the country a leader in the crypto industry in the coming decades. This would further the mainstreaming of bitcoin by giving the cryptocurrency grounds for government support.

“If the USA owns the most crypto assets (be it bitcoin or other assets), it would not make logical sense in our view to ban it,” RBC analysts said.

Governments and financial institutions have been cautious with cryptocurrency to date owing to its volatility and use by criminals. The very nature of cryptocurrency raises challenges for KYC (know your customer) laws and other regulations.

Apple itself has approached the industry with caution. The company removed a string of bitcoin wallet apps from its App Store in 2014, only to reverse its stance later that year. In 2018, Apple banned apps found to be mining cryptocurrency on its devices.

However, Apple has enthusiastically made moves into the fintech space. Apple Pay, its mobile payment and digital wallet service, was introduced in 2014. And in 2019, CEO Tim Cook announced the Apple Card, a digital credit card co-developed with Mastercard and Goldman Sachs.

Bitcoin’s billionaire backer

Tesla’s investment in bitcoin will come as no surprise to those who follow the online musings of the company’s founder and CEO, Elon Musk.

Last month, Musk was credited with a 20pc increase in the price of bitcoin simply because he added ‘#bitcoin’ to his Twitter bio.

The influence the billionaire wields on a platform with 46.2m followers has been linked to previous market impacts. His tweets on bitcoin and dogecoin have been attributed to gains for these cryptocurrencies, and his tweet apparently cheering on the recent surge of retail investors in GameStop was reported to have added more fuel to this frenzy.

Indeed, the news from Tesla prompted such a spike in trading on cryptocurrencies that exchanges such as Gemini, Kraken and Binance experienced technical difficulties.

The surge for bitcoin has also carried other cryptocurrencies on this wave, with Reuters reporting a record value of $1,784 for Ethereum this week.

Elaine Burke is the editor of Silicon Republic

editorial@siliconrepublic.com