Why the man who spent $446m in Bitcoins on two pizzas is not keen on buying a Tesla

Laszlo Hanyecz said he wouldn’t spend his Bitcoins on a Tesla. Mr Hanyecz knows what he’s talking about: In 2010, he paid 10,000 Bitcoins, worth about $446 million at current prices, for two pizzas.

It was the first known commercial transaction of cryptocurrency. Back then, Bitcoin’s price stood at less than a penny. It hit an all-time high of about $47,000 on Tuesday, the day after Tesla said it bought $1.5 billion in Bitcoin and will accept the digital currency for the purchase of cars.

“Personally, I am not too interested in Tesla,” Mr Hanyecz wrote in an email. “If you give it five years, I think the Bitcoin you’d spend will be more valuable than the car.”

What separates Bitcoin from a typical fiat currency, of course, is volatility. A dollar won’t be worth substantially more or less tomorrow. During the Bitcoin frenzy of 2017, some people bought Lamborghinis with their winnings. Other Bitcoin holders watched as the price fell by more than 80 per cent the next year, before quadrupling last year.

People tend to treat Bitcoin as a risky investment, rather than as a checking account. When Bitcoin rallied, especially in the latter part of last year, average monthly transactions of various cryptocurrencies processed by BitPay fell 27 per cent.

Merchant-related transactions accounted for 0.3 per cent of cryptocurrency spending in 2020, with the remainder dominated by an explosion of trading, according to researcher Chainalysis.

Transacting in Bitcoin is a risk for companies, too. Elon Musk has been more willing to gamble than most, dating back to his role as co-founder of the pioneering online payments company PayPal and more recently, to his fascination with the joke currency Dogecoin.

Tesla’s bet on Bitcoin follows a few others, including MicroStrategy and Square, that invested as a hedge against inflation. The moves boosted their stock prices when Bitcoin rose, but it can easily go the other way. For investors and corporate finance departments, it also makes earnings forecasting a lot more difficult.

For most people, buying a car is a big financial decision, and it’s unwise to introduce another potentially life-changing factor on top of that, said Mr Hanyecz. While he said he doesn’t regret buying those pizzas, Mr Hanyecz said people are better off using a credit card.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

The specs

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Why the man who spent $446m in Bitcoins on two pizzas is not keen on buying a Tesla

Laszlo Hanyecz was the first person to use Bitcoin in a commercial transaction in 2010

The specs