Elon Musk’s Bitcoin Marketing Coup

What you need to know today in crypto and beyond

March 26, 2021

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Today's must-reads

Top Shelf

INVESTMENT GRADE: A New Zealand growth fund has invested 5% of its $244 million in managed assets in bitcoin. The KiwiSaver Growth Strategy Fund, a retirement fund, began investing in crypto in October. Separately, investor Kevin O'Leary of "Shark Tank," said bitcoin "made in China" might be a scarlet letter for institutions looking for ethically produced and green crypto. "Is this coin manufactured in countries that are abusing human rights or have sanctions against them?" O'Leary said at a Cboe event.

CHAIN EFFECT? Effect Network, one of the largest decentralized finance (DeFi) platforms on the EOS blockchain is migrating to Binance Smart Chain (BSC) due to concerns over the former's future path and current leadership. EOS was backed by one of the largest token issuances to date, but has failed to gain foothold in the world of decentralized apps. The Binance-incubated BSC is one of the fastest growing programmable chains today, though it is mired in controversy.

SLEUTH'S SERIES: Chainalysis raised a $100 million Series D, led by Paradigm, in a round that underscores surging demand for cryptocurrency compliance infrastructure. The company is now valued at $2 billion. Chainalysis' client base includes government investigators, crypto exchanges and financial institutions.

OVERLY OPTIMISTIC: Ethereum scaling solution Optimism delayed its mainnet launch to July after the venture-backed startup's March promise proved "overeager," the project announced Thursday. The project raised $25 million from Andreessen Horowitz and others last month.

– Daniel Kuhn

Overheard on CoinDesk TV

Sound Bite

"Putting bitcoin clearly in the pie chart, so to speak, of the world's total carbon footprint is something we really need to get to grips with."

– Scott Chipolina, Decrypt investigative reporter, said on CoinDesk TV's "Coin Toss" on Wednesday.

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From the world leader in crypto news and events, the all-new CoinDesk TV covers the rapidly evolving world of digital finance and its role in the global economy.

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What others are writing...

Off-Chain Signals

Lego may have hinted it is thinking about non-fungible tokens in a deleted tweet. The New York Times' first NFT (a Kevin Roose column) sold for $560,000 after a 24-hour auction. Top that? An NFT made by humanoid robot "Sophia" sold for $688,000.

"Crypto players" are reportedly happy with new directives on crypto in India. "This is a positive sign that the government is taking cryptocurrencies seriously," Vikram Rangala, CMO of ZebPay, told The Week.

"Central bankers are belatedly realizing" innovations have emerged in crypto & blockchain as response "to two big flaws in modern finance." – FT

"A new twist on the American dream is taking root in virtual worlds, where investors buy parcels of land and strong communities boost desirability," how Al Jazeera covers the metaverse.

– D.K.

A message from NEM GROUP

Symbol from NEM, the next-generation public blockchain, launched March 15, marking a milestone in NEM's vision for a new economic and digital system. Boasting enterprise-grade security and programmability, Symbol smooths business friction and increases the flow of data to supercharge the creation, exchange and protection of assets. NEM Group - comprising NEM Software, NEM Trading, and NEM Ventures - nurtures a strong and healthy ecosystem to shape the development and future of blockchain technology for generations to come.

Putting the news in perspective

The Takeaway

Elon Musk's Bitcoin Marketing Coup

Here's some free advice for the Honda Motor Company: Market your cars to the newly bitcoin rich.

I've already got the ad copy for you.

A true bitcoiner is building for the future and deferring gratification. She doesn't blow her hard-earned savings on flashy toys. She prefers a solid, dependable family car.

And a slogan….

Lambos are for losers. HODLers drive Hondas.

OK, so I'm no Don Draper. It's doubtful Honda or any other affordable carmaker would heed my suggestion any time soon. It's different for luxury electric vehicle maker Tesla, which doesn't need to be told – it's already doing something similar.

Diamond hands

This week, the manufacturer began accepting bitcoin as payment for its cars, delivering on a promise made in early February by its impish chief executive, Elon Musk. Underscoring his faith in the currency, Musk declared on Wednesday that Tesla would keep rather than convert any bitcoin it earns from car sales.

Typically, the rare merchant that accepts crypto as payment for goods or services will swap it right away for U.S. dollars or another fiat currency. That's understandable, given the price volatility and the low likelihood that a merchant's suppliers would take magic internet money. But the Tesla chief said his company is HODLing.

For the uninitiated, HODLing is bitcoin slang for refusing to sell BTC, either to take profits in a bull market or to cut losses in a bear market. Based on a forum poster's drunken misspelling of "hold," the word broadly connotes a steely determination in the face of fear, uncertainty and doubt. A HODLer is someone who, to borrow from Rudyard Kipling, "can keep your head when all about you/Are losing theirs and blaming it on you."

Musk clearly is one, in at least the narrow sense, having invested $1.5 billion in bitcoin for Tesla's corporate treasury beginning this year. Over the last 12 months, the cryptocurrency's price has soared nearly 700%, as inflation fears, a self-perpetuating hype cycle and possibly pandemic lockdown boredom spurred buying among individual and institutional investors. Like Tesla, for instance.

Yet, while I'm sure Musk would be happy to keep growing Tesla's BTC stash one car sale at a time, I strongly suspect that isn't his only or main motivation.

Rather, my gut is that the payment option is at least in part, if not primarily, a clever marketing maneuver.

Incentives to HODL

First off, there's no indication Tesla is offering a discount to buyers who pay with bitcoin, which you might expect the company to do if its main goal were to acquire more of the stuff. Also, Tesla surely understands that bitcoiners are strongly disincentivized to part with their "sats" (a loving nickname for the currency's smallest unit, 0.00000001 BTC, in homage to creator Satoshi Nakamoto).

This is partly for the reason I alluded to in my quixotic Honda pitch: Bitcoin is deflationary by design. There's a set amount – 21 million BTC – that will ever be minted. Yet, as it grows in popularity, denominating things such as luxury cars in bitcoin ends up hurting the buyer over the long run.

While the price oscillates wildly from one minute to the next, if you zoom out the lens real wide bitcoin has generally appreciated over time, which encourages saving (or "hoarding," depending on your worldview). Remember that pizza purchased for 10,000 bitcoin in 2010? Ten thousand bitcoin is worth $500 million today. Hope the pizza tasted good.

Also, in the U.S. crypto is treated as property for tax purposes, which means that if you buy a coin for, say, $1 and it doubles in value and you spend that extra dollar on a cup of coffee, you are supposed to report the purchase to the Internal Revenue Service and pay tax on it. It remains to be seen whether Uncle Sam will go after every last Joe Schmoe who fails to report a piddling purchase. But it's reasonable to assume anyone who uses crypto gains to buy a Tesla (which can run from $39,000 to $150,000) would show up on the taxman's radar.

Even if a buyer can overcome those hurdles, Tesla isn't making it easy. As CoinDesk's Daniel Kuhn reported Thursday, when paying Tesla with bitcoin a car buyer has "about 30 minutes" to complete the transaction or else the price in BTC expires and a new one must be requested. Also, Tesla will only accept exact amounts and will not reimburse payments sent to an incorrect address.

All told, even if you have large bags of bitcoin, it may make more sense to pay with fiat, whether for a Tesla or a tall latte.

Tribal signaling

Crypto is already obsessed with a car: the Lamborghini. But it's more of a joke than anything. Were Tesla to become the true status symbol in this industry, it could move the needle.

By embracing bitcoiner culture, Musk is likely to make more sales among that crowd than would happen otherwise, even if they're settled in greenbacks. Any extra bitcoin Tesla picks up would be gravy.

In the Wednesday tweet, Musk also revealed Tesla is running its own node rather than relying on a third party to tell it what's happening on the Bitcoin network. This is considered a best practice for advanced users, but it's also a signal to the tribe: I get it. I'm one of you. It's closely associating the Tesla brand, and Musk's, with the ethos of the sovereign individual that animates the crypto community, not least of all the bitcoin faithful.

Think of it as a weird 21st century twist on affinity marketing but without any formal partnership like the one my college had with a credit card lender in the 1990s, which led to me getting up to my ears in debt from charging stuff I didn't need and couldn't afford. Gee thanks, Alma Mater; I wish bitcoin were around back then to set me straight.

There is also a less charitable interpretation of Musk's messaging: That he's trying to divert attention away from bad news for Tesla. As CoinDesk's Muyao Shen reported in February, the big coming-out party coincided with the revelation by Chinese officials they are questioning Tesla about quality and safety issues. And this week's bitcoin announcement conveniently happened right after reports that U.S. regulators are scrutinizing Tesla's autopilot technology.

If true, this explanation is not mutually exclusive with my hunch. Tesla HODLing bitcoin could be a cynical PR move and a marketing coup – and a sincere adoption of an innovation in the world of bits by an innovator in the world of atoms, all at the same time. Binary thinking is for fools.

It's far from certain if the marketing ploy, if that's what it is, will work. "Not quite sure if anything sold yet in bitcoin," a Tesla representative told my colleague Thursday.

But for my money, it's better than anything Madison Avenue could come up with.

– Marc Hochstein

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