Should you Buy a Tesla with BTC?

Tesla is among the 1st companies to add Bitcoin to its balance sheet. The company holds more Bitcoin than almost any other institution –– Tesla invested $1.5 billion into the cryptocurrency in January 2021. Since Tesla made this investment, it’s estimated that the company has made around 100% returns in the span of just a few months.

Tesla announced that it has started accepting Bitcoin as a form of payment. Elon Musk noted on his Twitter that Bitcoin payments won’t be converted into fiat currency. Instead, Tesla will accept bitcoin payments to gain more exposure to the cryptocurrency.

Tesla announced that it will start accepting Bitcoin as a form of payment soon. Tesla plans to accept Bitcoin as a strategy to continue adding it to its portfolio. Using Bitcoin as a form of payments can be risky –– you don’t want to be the person who spent $1 million worth on a Tesla because you spent your investment too early. On the other hand, if Bitcoin depreciates, then you could potentially save yourself from those losses by purchasing a Tesla with your Bitcoin.

Tesla to Start Accepting Crypto Payments

Tesla recently announced that it purchased $1.5 billion worth of bitcoin to hold as an investment on its balance sheet. This exposes Tesla to the volatility of Bitcoin, which has gained controversy from Tesla’s shareholders. As of writing, it’s predicted that Tesla’s investment has roughly doubled in value, making the company enormous amounts of profit. With more money being pumped into the economy with every stimulus bill, more companies are looking to alternate stores of value to hedge against inflation. 

Tesla CEO Elon Musk announced on his Twitter that Tesla will accept Bitcoin as payment for its electric vehicles. Although the price of Bitcoin is volatile, accepting Bitcoin as payment is a good way for companies to gain exposure to cryptocurrency assets.

Bitcoin vs USD

Since its inception, Bitcoin has appreciated against USD more than almost any other asset. In July 2010, Bitcoin was trading at less than 1 cent per coin. Although Bitcoin has been through several bear markets where its value diminished over 80%, it’s recovered to new all-time high prices in each subsequent bull market.

As you can see, the price of bitcoin is highly volatile. If you aren’t risk-tolerant, then cryptocurrency may not be for you. With the high volatility associated with Bitcoin, many investors see Bitcoin’s price movements as irregular. Since Bitcoin has risen so dramatically over the last decade, if you adjust the scale of Bitcoin’s prices to be logarithmic, you can see a clear trendline.

If you want to spend your Bitcoin on a Tesla but don’t want to lose your exposure to your investment, you can use BlockFi to take out a loan with cryptocurrency. BlockFi offers loans to anyone, regardless of credit. The company can do this by requiring bitcoin to be held as collateral for your loan; once you pay back your loan, you’re given back the bitcoin you used as collateral.

Pros and Cons of Buying a Tesla with Bitcoin

According to the IRS, you’re still responsible for paying taxes on Bitcoin used as payment. So, if you plan on saving on taxes by using Bitcoin, you’re out of luck. Bitcoin isn’t any easier to use than other forms of payment, so it may just be better to buy a Tesla with cash.

The biggest pro or con of using bitcoin as a payment is the opportunity cost of spending your bitcoin. An opportunity cost is the foregone gains from an alternative decision (like holding your bitcoin and using cash instead). If you think that Bitcoin will depreciate in the future, then using it to buy a Tesla may be a good idea. On the other hand, if you believe Bitcoin’s price will continue to rise, then you should probably hold onto your crypto and use cash.

Bitcoin Taxes

Bitcoin and all other cryptocurrency assets are taxable under IRS regulations. Unlike currencies, Bitcoin is taxed as property, similar to stocks. This means that when you dispose of your Bitcoin in any way, you are responsible for claiming capital gains tax on your tax returns. Taxing cryptocurrency as property instead of currency is actually beneficial for investors, as capital gains taxes are less than income taxes, which is how currencies are taxed. 

Best Bitcoin Wallets

The primary types of bitcoin wallets are hardware wallets and software wallets. Software wallets are usually free to use, and they’re computer programs that store your crypto on your phone or computer. Some notable software wallets include Coinbase wallet, Binance wallet and BlockFi. BlockFi is unique because it lets you earn interest on your cryptocurrency holdings.

Hardware wallets are the safest way to store bitcoin, as they store your assets offline on a physical device. These devices are typically the size of a USB stick and connect to your computer via Bluetooth or USB. One of the best hardware wallet companies on the market is Ledger –– it supports over 1,000 cryptocurrencies and has industry-leading security features. 

Best Exchanges to Buy and Make Bitcoin Payments

Most exchanges that let you invest in cryptocurrency also allow you to send Bitcoin from your exchange account to other wallets. This is how you can make payments with Bitcoin or send Bitcoin to a hardware or software wallet. 

Some exchanges that you can easily purchase Bitcoin on are Coinbase, eToro and Gemini. These exchanges, depending on your account verification level, let you instantly send Bitcoin to other wallets to make payments. 

get started securely through Webull’s website
Best For
Low Minimums
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
Pros
  • No charges to open and maintain an account
  • No account maintenance fees or software platform fees
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Only offers 14 coins
get started securely through Exodus Wallet’s website
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Staking Crypto + Earning Rewards
N/A
1 Minute Review

Founded in 2015, Exodus is a multiasset software wallet that removes the geek requirement and keeps design a priority to make cryptocurrency and digital assets easy for everyone. Available for desktop and mobile, Exodus allows users to secure, manage and exchange cryptocurrencies like Bitcoin (BTC), Ethereum (ETH) and more across an industry-leading 10,000-plus asset pairs from a beautiful, easy-to-use wallet. The noncustodial functionality is encrypted locally on users’ own devices, ensuring privacy, security and complete control over their wealth. Exodus is on a mission to empower half the world to exit the traditional finance system by 2030.

Best For
  • Newcomers to the cryptocurrency world
  • Ease of use
  • Trezor integration
Pros
  • Free
  • Huge selection of cryptocurrencies
  • Excellent 24/7 customer support
  • No personal info needed
Cons
  • FTX app not available on the mobile app
get started securely through SoFi’s website
Best For
Beginners
N/A
1 Minute Review

SoFi takes a modern approach to personal finance. It recently created buzz with the release of SoFi Crypto, a way to trade cryptocurrency on the app. The platform allows investors to familiarize themselves with crypto. It offers a high level of security, great customer support and an intuitive interface. However, it does have shortcomings with the number of cryptos offered and geographic restrictions.

Best For
  • Beginners
  • Centralization of your money
Pros
  • Charges low or no fees for some functions within the interface.
  • Relies on Coinbase, a very secure platform, to process transactions.
  • Presents a low barrier of entry — you only need $10 to start trading.
Cons
  • Currently only offers 28 coins.
get started securely through eToro’s website
Disclosure: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal. Virtual currencies are highly volatile. Your capital is at risk.
Best For
Copy Trading
N/A
1 Minute Review

eToro is headquartered in Cyprus, England and Israel. A major eToro plus is its social trading operations, which allows new clients to copy trade the platform’s best performers. Its social trading features are top notch, but eToro loses points for its underwhelming research and customer service features.

Best For
  • Investors looking to CopyTrade other traders
  • Simple user interface
Pros
  • Several major cryptocurrencies and altcoins
  • Expansive network of social trading features
  • Large client base for new traders to imitate
Cons
  • Only 29 coins available
Invest In Crypto securely through Gemini Crypto’s website
Best For
New Investors
N/A
1 Minute Review

Gemini is a cryptocurrency exchange and custodian that offers investors access to over 100 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.

Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader. 

In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.

Best For
  • New investors looking for a simple mobile and web app
  • Day traders looking to use technical analysis tools
  • Users looking for a 1-stop-shop to buy, sell and store all of their cryptos
Pros
  • Easy and quick signups — can get started in as little as a 5 minutes
  • Multitude of platforms to accommodate traders of all skill levels
  • Hot wallets include insurance to protect your from theft and hacking attempts
Cons
  • Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app
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Best For
Coinbase Learn
N/A
1 Minute Review

Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs. 

You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.

Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.

Best For
  • New cryptocurrency traders
  • Cryptocurrency traders interested in major pairs
  • Cryptocurrency traders interested in a simple platform
Pros
  • Simple platform is easy to operate
  • Comprehensive mobile app mirrors desktop functionality
  • Coinbase Earn feature rewards you with crypto for learning about available coins
Cons
  • Higher fees than competitors

How Does a Bitcoin Exchange Work?

Most Bitcoin exchanges are centralized exchanges, meaning that the exchange holds all investors’ funds and allocates them accordingly. On these exchanges, investors can trade or convert their cryptocurrency for a small fee, avoiding the cost of blockchain transaction fees.

Centralized exchanges use order books to calculate the market price of Bitcoin. Bitcoin order books are an aggregation of all the buy and sell orders for the asset; the price is determined by the highest bid and lowest ask for the cryptocurrency. For example, if the order book’s lowest ask is $55,000 per bitcoin and the highest bid is $54,999, then you can either purchase Bitcoin for $55,000 or sell for $54,999. 

Decentralized finance (DeFi) is a fairly new cryptocurrency industry within cryptocurrency. DeFi exchanges work differently than traditional exchanges, as there is no 3rd party that controls your assets, and you don’t need to make an exchange account. Instead, these exchanges use smart contracts to delegate investors’ funds. 

Using Bitcoin for Payments

In its early days, Bitcoin was seen as a new form of payment to be used through the internet. Now, bitcoin is seen more as a store of value; an investment similar to gold or silver. This is due to the low transaction throughput on Bitcoin’s network –– Bitcoin is only capable of handling about 7 transactions per second, making it hard to use as a form of payment. Most investors would rather use USD as a form of payment, as they predict Bitcoin’s value will appreciate faster than the dollar.

Frequently Asked Questions

Q

Q. What can you actually buy with Bitcoin?

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Q. What can you actually buy with Bitcoin?
asked
A
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Most companies don’t accept Bitcoin as a form of payment. You can technically buy anything with Bitcoin, but you need to find someone willing to accept Bitcoin as payment. Some large companies like Microsoft, AT&T and Twitch all accept Bitcoin payments for certain transactions.

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Q

Q. What risks has Tesla taken with Bitcoin?

1
Q. What risks has Tesla taken with Bitcoin?
asked
A
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By adding Bitcoin to its balance sheet, Tesla has taken on the risk of Bitcoin’s price volatility. So far, this risk has paid off for Tesla. Since the company invested, Tesla has made more profit from Bitcoin than it has from selling its electric vehicles.

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