BITCOIN TO $500,000 - What You MUST Know

What's up, Graham? It's guys here, and I'm not gonna lie, sometimes it feels like we're living in the golden era of the finance and investment community. Although I realize that "golden era" might not be the proper term here because we're not talking about gold per se; we're talking about the digital gold, Bitcoin. See how I set that up? I'm pretty proud of myself, if you couldn't tell.

Anyway, here's a story that's pushing Bitcoin into some serious mainstream legitimacy. As of the other morning, Elon Musk and Tesla have announced a 1.5 billion dollar investment into Bitcoin. Now, obviously, as you would expect from any Elon Musk announcement, the price of Bitcoin surged 20 percent, breaking past its previous all-time high. At the time I'm filming this video, it's just under 47,000.

But that very much poses new questions, like who's next and how much higher can this possibly go? Not to mention, if a company like Tesla is investing a portion of their money into Bitcoin, what does that mean for you watching, and should you do the same? After all, in the recent few months, PayPal has been integrating Bitcoin into their portfolio. Institutional investors have been throwing billions of dollars into it, and Ark's very own Kathy Wood, who previously called Tesla stock to four thousand dollars and was right, now thinks Bitcoin could hit 500,000.

So here's what you need to know: who's buying in, what this means for you, and then my totally honest thoughts about what's going on and what I'm doing with this information. But first, I got to show you this brand new breaking tweet from Elon Musk, who reminds you to smash the like button for the YouTube algorithm. That's totally not photoshopped. Okay, it is photoshopped, but if you want to hit the like button anyway, it helps me out a ton, it helps out the YouTube algorithm, and it's totally free to do so. Thank you so much for doing that, and with that said, let's begin!

This all starts in the morning on Monday, February 8th, where in an SEC filing, Tesla announced that they have moved one and a half billion dollars over to Bitcoin in January of 2021 to, as they say, further diversify and maximize returns on our cash that's not required to maintain adequate operating liquidity. Or in other words, if Tesla has 19 billion dollars sitting in cash and that's more than they need to stay afloat, they're gonna put 8.3 percent of that money into Bitcoin, with the potential of, wait for it, one day accepting Bitcoin as payment for their cars.

But here's where things get interesting: They say if they do get payment in Bitcoin, they may or may not liquidate upon receipt, which is really just another word for saying they might just hold on to your Bitcoin and continue to accumulate more as they deem necessary. Now, of course, after that, we do have their disclaimers. Because as fun as it might be to go and buy one and a half billion dollars in Bitcoin and then tweet about it, there are some very serious legal implications that could have a negative impact on the entire company itself. Because whether you like it or not, a small portion of Tesla's stock price might now be pegged to the price of Bitcoin, since, like they said, 8.3 percent of their cash is in Bitcoin.

So, of course, here's what they have to say about that. And by the way, when I was reading through a lot of this stuff, it's a lot of boring legal jargon. So instead of just reading this off to you, I'm going to give my own super simplified interpretation of what they actually mean, and that's way more fun anyway. So here's what they say in my own words about their warning right here: They say the price of Bitcoin is extremely unpredictable, so we don't know what it's going to do. Even though it's done well historically, we could lose a lot of money. We could also lose a lot of money in the event of a cyber attack or if something happens to Bitcoin.

We also don't know if laws and regulations might change in the future, so if we hold Bitcoin, it could go down in value, and when that happens, it's going to hurt the financials of our entire company. Oh, and also, smash the like button for Graham! And then here's the interesting part that makes it seem like maybe they're just doing some creative accounting here, but listen up to this: They say that if the price of Bitcoin goes down, that's going to be a loss on their balance sheet, making it look as though they're earning less money. But if the price goes up, they're not responsible for paying any taxes on that profit until they sell.

Now, I'm definitely not a tax attorney by any means, but if I were a tax attorney, I would think this would be a win-win scenario. If the price of Bitcoin goes down, then they get a tax write-off, but if the price of Bitcoin goes up, they don't have to pay any tax on that profit until they sell. I also think there's another aspect to this that everyone seems to have forgotten that no one is talking about, and that would be the brilliance in using all of this as free marketing. Think about it for a second: If a company so much as whispers about accepting cryptocurrency, it's as though they're the front page of every major news outlet. Their stock price starts going up, and it's as though everyone talks about them nonstop for a few days.

For Tesla, this is totally free publicity, not to mention the mere act of mentioning Bitcoin causes the price of Bitcoin to go up. So not only now is it free marketing, but they're getting paid for free publicity. That's the type of brilliance that very few people understand, and I think it's just pure genius. But this is only the tip of the iceberg, and it starts getting really interesting once you start digging deeper, and I did.

Now, this is not the first time that big-name companies have publicly embraced Bitcoin and cryptocurrency, and here's a few recent examples. First, we got PayPal. In October, the payment company announced that they would enable cryptocurrency as a funding source for 26 million of its merchants. That's a huge push towards legitimizing Bitcoin as a store of value, and it was so popular that users who bought cryptocurrency were twice as likely to log back in their account.

Now, second, PayPal is also extending this over to Venmo as well. They're planning to roll out new features to allow their users to buy, sell, and hold cryptocurrency, as well as include budgeting, saving, and other investment alternatives. The third, the analytics company MicroStrategy has been keeping a significant amount of their cash reserves in Bitcoin. In fact, in December, the CEO, Michael Saylor, said he was buying a thousand dollars worth of Bitcoin—wait for it—every second. That's now equivalent to 2.4 billion dollars of reserves for the company.

The fourth, Stone Ridge Asset Management saw what MicroStrategy did, and so they bought 10,000 Bitcoins for the price of 114 million dollars. Fifth, the Grayscale Bitcoin Trust holds roughly 25 billion dollars worth of Bitcoin. And now other hedge funds are looking for exposure to Bitcoin too, by investing a portion of their money in the trust as well. And sixth, we've got another very popular one around retail, and that would be Square. The company recently invested 50 million dollars into Bitcoin, which represents one percent of their total assets.

As they say, for a company that is building products based on a more inclusive future, this investment is a step on that journey. But as far as the reason why all of these big corporations are buying Bitcoin, it's not necessarily because they believe it's just gonna keep going up in price, even though I believe that's a small part of it. But instead, I think it's much deeper than we all think. To go into that why, we should look no further than Kathy Wood from Ark Invest.

Now, I know so many people have been asking me to make a video on my thoughts on Ark Invest, and I will say Kathy Wood has been right on a lot of things. When she famously said that Tesla would one day trade for four thousand dollars a share back when it was trading at 380 dollars pre-split, many people laughed it off as a distant pipe dream, but sure enough, she was right. And even though I don't think past performance guarantees future results, her funds so far have done phenomenally well, and she also happens to have some good insights into Bitcoin.

She said that she's not surprised at the level of institutional investment because when you look at the correlation between Bitcoin's performance relative to any other asset, it has the lowest correlation, meaning if you buy Bitcoin, it's a way to further diversify your portfolio and increase your returns with lower risk. She also publicly said that other tech companies would soon start adopting Bitcoin, potentially as a hedge against inflation and a weakening U.S. dollar, and I think for a lot of people and a lot of companies, that's going to be a driving force behind their investment in Bitcoin.

But where this starts getting interesting is her thoughts when it comes to value. She explains that right now, the total market cap of Bitcoin is roughly 650 billion dollars at the time I'm filming this video, which isn't even half the size of Apple or Amazon. She believes that Bitcoin, a decentralized global digital currency, is undervalued relative to that. Her reasoning is that it could go to 500,000 if other large institutions allocated mid-single digit amounts to Bitcoin, similar to what Tesla has done. And at the rate we're going, that may very well be possible.

But of course, there are downsides, including something that I came across while researching this video, and that would be an old quote from Elon Musk on his thoughts on Bitcoin. In 2019, Elon Musk was quoted as saying, "I think the Bitcoin structure is quite brilliant, but I'm not sure it would be a good use of Tesla's resources to get involved in crypto." He also criticized how energy intensive it is to produce and how it would clash with Tesla's stance on renewable energy. And in a way, he's correct; in 2019, it was shown that Bitcoin's energy consumption was more than all of Switzerland, and Bitcoin uses 30 times more electricity than electric cars.

Now, to be fair, I tried to research and calculate how much of a carbon footprint actually printing physical money has, and then comparing it to that Bitcoin, but I got in over my head trying to figure out the exact numbers from a reliable resource and then putting that all together. So if someone else wants to actually do the math and cite their sources, I will pin your comment at the top of the video. Although I have a feeling that Elon Musk recognizes how energy inefficient mining for Bitcoin is, hence his 100 million dollar fund to incentivize new ideas to reduce the carbon footprint.

So maybe one day he can have his cake and eat it too. Beyond that, though, there's also the risk of, well, Bitcoin going down in price. It's no surprise that Bitcoin is incredibly volatile, and a price swing of 20 in either direction really wouldn't be that out of the ordinary. So it's really anyone's guess where it might be one, five, or even ten years from now. But when it comes to myself, I'm very upfront that just a few years ago, I was very indifferent to cryptocurrency. I've covered it extensively on the channel over the last four years. I dabbled with it in 2017 just to see how it worked and what it was all about, and for the most part, it was really a novelty.

I never took it too seriously until about a month ago when I made the decision to place one percent of my portfolio into a 60-40 split between Bitcoin and Ethereum. And really, now that one percent has grown faster than I anticipated. My logic in doing this was simple: I'm keeping too much cash on the sidelines in case a good investment opportunity comes up, and because of that I would rather take the one percent risk in putting my money in Bitcoin and Ethereum than a one percent risk of not doing that.

This is an amount that I'm not going to lose any sleep over; it's not going to stress me out if it goes down in price, and I'm just going to keep it sitting there as a hedge against whatever happens. If it goes up, great! If it goes down, so be it. I think there is certainly an opportunity cost and inflationary risk you take when keeping too much of your money in cash. And even though it's normal for Bitcoin to swing wildly in price, I just think it's safer to expose myself to new asset classes, especially something where a lot of institutions are beginning to embrace it.

Plus, I could potentially maximize my returns, as Tesla would say. And if I were to guess, I would say that over the next 12 to 24 months, a lot of other companies are going to be following Tesla's lead and investing a small portion of their reserves in Bitcoin. It's definitely not without risk, and I'm fully prepared for it to be dropping 90 in value. Although I really don't see any harm in placing a small portion of my money in Bitcoin and Ethereum as just another way to balance out everything else I'm doing.

My biggest piece of advice, however, is to not FOMO into it because you want to make as much money as fast as possible. Instead, you should come up with a plan ahead of time in terms of how much money you want to invest, how consistently, how much you're prepared to lose, how long you want to hold on to it for, and then actually stick to the plan. If there's one common theme I've seen throughout every big institutional investor or personal investor of Bitcoin, it's that they do not just go all in on Bitcoin and then try to ride it to the moon. Usually, these investors are placing anywhere from 10 to 15 percent of their money in Bitcoin among a whole bunch of different investments elsewhere.

This is not meant to be a home run investment or trying to get rich as fast as possible, but instead it's just viewed as another way to diversify, and that's probably how you should see it as well. I think overall, Tesla keeping some of their reserves in Bitcoin is a really good sign for the overall market, and knowing how influential Tesla is, no doubt other companies are soon going to be following. I have no clue if I feel as strongly as Kathy Wood does about 500,000, but for now, I think the future of Bitcoin is looking better and better.

And really, as someone who used to be nothing more than a passive observer of what Bitcoin is doing, the more I have looked into and researched Bitcoin, the more I have come to embrace it and to like it, but as no more than three to five percent of your portfolio. And also, I just want to put this here at the very end: The day that Warren Buffett or Berkshire Hathaway invests some of their cash into Bitcoin is the day that Bitcoin gains complete mainstream acceptance. I just wanted to say that, so that if it happens, I could look back at this as proof that I said it before the Simpsons did it.

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I post pretty much daily. So if you want to be a part of it there, feel free to add me there. As for the second channel, the Graham Stephan Show, I post there every single day. I'm not posting here, so if you want to see a brand new video from me every single day, thank you so much for watching, and until next time!