Quicktake: How will Tesla accepting Bitcoin work?

The electric vehicle maker has already invested $1.5bn in the biggest cryptocurrency

Tesla, which joined the S&P 500 index in December, delivered close to 500,000 vehicles globally last year. EPA

Tesla will let its customers pay for its electric vehicles in Bitcoin, expanding the use of the popular cryptocurrency in real life transactions.

Bitcoin, which is mostly used as a speculative investment asset rather than a mode of day-to-day payment, rose to a record high of more than $48,000 on Tuesday morning following the news.

The National looks at what the process of buying a car from Tesla with Bitcoin might look like.

The traditional payment route 

If Tesla adopts the traditional model of accepting Bitcoin payments then customers would first transfer their digital assets from their wallets to a third-party cryptocurrency payment processor. It would then convert Bitcoin into a fiat currency, such as dollars or dirhams, and transfer the final amount to Tesla’s account.

Currently, companies like telco AT&T and technology giant Microsoft accept Bitcoin through a third-party payment service provider such as BitPay.

Should Tesla hold Bitcoin?

"Tesla as a company has to pay for the manufacturing of their cars and have shareholders to satisfy … they will not gamble with customers' money," said Andrew Rowlstone, business development manager at Abu Dhabi-based Libra Project, which is issuing equity tokens in green utility infrastructure, told The National.

“On receiving the Bitcoin payment at a showroom level, I expect Tesla to liquidate it into fiat currency pretty much immediately to minimise the risk. Elon Musk is investing his own or Tesla’s capital in Bitcoin but I don’t see Tesla using customers’ money to speculate on the markets,” he added.

Staying the course

Tesla could accept Bitcoin directly and add the cryptocurrency into its own investment portfolio. Its filing to the Securities and Exchange Commission revealing it already holds $1.5 billion worth of Bitcoin said it will accept the cryptocurrency as payment "initially on a limited basis, which we may or may not liquidate upon receipt".

"Elon Musk, the richest person in the world, is validating Bitcoin as an asset class for his publicly-listed company ... it is humongous news," Dr Irina Heaver, a technology and crypto lawyer, said.

Tesla could then keep the coins within its own cryptocurrency wallet.

“We are moving in a new era … cars will receive payments and send payments on their own. With Bitcoin in the wallet, a Tesla car can pay itself for road toll tax, maintenance or for radio subscription services,” she added.

A double-edged sword

There are two issues the company needs to weigh up when deciding how to use the Bitcoin received for transactions.

First, Bitcoin is an extremely volatile asset and although its price has multiplied by almost a factor of five over the past year, this doesn't mean it can't come crashing down, Ipek Ozkardeskaya, senior analyst at Swissquote, said.

“The high volatility in Bitcoin’s value will therefore inevitably inject a certain volatility in Tesla’s revenue, and decrease the predictability of the company’s performance,” she said.

Price of Bitcoin surged to $47,711 at 11.35am UAE time on Tuesday. AFP

Second, buying a Tesla car in Bitcoin is basically betting that the digital currency’s price will either stabilise or fall, she added.

“No one would bury his or her Bitcoin in a car predicting that its price would triple again in the next few years,” said Ms Ozkardeskaya.

Should other companies accept Bitcoin?

Some companies have been accepting Bitcoin for goods and services for years now, said Ms Heaver, who accepts cryptocurrency for her own services.

“It is quite easy and frictionless,” she says.

“I can send $10 million worth of value to your wallet right now from my phone. You will receive it in less than 10 minutes depending on how busy the network is … and I will pay exactly the same fee even if I send Bitcoin worth $10,000 or worth $100,000,” she added.