Cryptocurrency’s price soars after electric-vehicle maker says it soon expects to accept customer payments in bitcoin.
4 min
Tesla Inc. said Monday that it bought $1.5 billion in bitcoin, a disclosure that follows Chief Executive Elon Musk’s promotion of the cryptocurrency and other digital-currency alternatives on Twitter.
The electric-vehicle company also said it expects to start accepting bitcoin as payment for its products soon. Bitcoin prices jumped more than 10% after the announcement, according to cryptocurrency research and news site CoinDesk.
Tesla disclosed its bitcoin purchase in its latest annual report, saying the move aims to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Tesla said a board committee had approved changes to company rules on investments, adding that it can also invest cash in gold bullion and gold exchange-traded funds among other assets.
The bitcoin purchase, likely among the largest by a public company, comes after a rally in 2020 when the price more than quadrupled. Tesla is joining a handful of other companies that have disclosed bitcoin holdings. Software developer MicroStrategy Inc. acquired about $425 million worth of bitcoin last summer, and its CEO, Michael Saylor, has become an outspoken proponent.
Companies holding bitcoin in their treasuries face an accounting risk: Because bitcoin and other digital assets are considered “indefinite-lived intangible assets,” rather than currencies, any decrease in their value below what the company paid for them—even a temporary one—can force a company to write down the value, taking an impairment charge. MicroStrategy posted a net loss in the third quarter of 2020 because the price of bitcoin dropped temporarily in September.
Tesla said it would analyze its holdings in the cryptocurrency each quarter to see whether impairments are warranted based on bitcoin prices. “If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed,” the company said.
Sharp changes in the digital currency’s valuation might be why companies have acquired millions, rather than billions, of dollars’ worth of the cryptocurrency, said Michel Rauchs, founder of Luxembourg-based digital-assets consulting firm Paradigma Sarl: “It is definitely greater risk but greater reward there.”
Bitcoin recently traded Monday at $43,602.68, according to CoinDesk. Its price averaged $34,730.12 in January and is currently more than eight times higher than bitcoin’s 2020 low of a little under $5,000.
Mr. Musk has shown growing interest in bitcoin in recent years, after tweeting in 2018 that the only cryptocurrency he owned was one-quarter of a bitcoin a friend had given him—which today would be worth more than $10,000. Around Jan. 29 the Tesla chief changed his Twitter biography to “#bitcoin,” which sent prices for it higher, before removing that reference.
“I think bitcoin is really on the verge of getting broad acceptance by sort of the conventional finance people,” he said last week on the social-networking app Clubhouse. Mr. Musk said he needed to be cautious with his public statements about cryptocurrencies because “some of these things can really move the market.”
Tesla didn’t respond to a request for comment. The company said in its report that it updated its investment policy in January but didn’t disclose the exact timing of either its board decision or its bitcoin purchase.
“He’s already telegraphed it to the market,” said Meltem Demirors, chief strategy officer at London-based asset management firm CoinShares, referring to Mr. Musk’s mentioning bitcoin in his Twitter biography. “One of the world’s largest corporations doing this—I think it opens the floodgates.”
Recently, Mr. Musk’s tweets about dogecoin, a cryptocurrency started as a joke in 2013, have helped drive up that virtual currency’s price.
Tesla has struggled to maintain cash while ramping up vehicle production, but its shares soared some 480% in the year ended Friday as investors piled into electric-vehicle makers and the company reported a string of quarterly profits. Tesla took advantage of that surge by selling billions of dollars in new stock, shoring up its cash position. The company’s cash holdings totalled around $19.4 billion at the end of last year, up from around $6.3 billion at the end of 2019.
Mr. Musk’s tweets have drawn regulatory scrutiny, including from the Securities and Exchange Commission over a 2018 post in which the CEO said he had secured funding to take Tesla private. Mr. Musk and the SEC later settled in a deal requiring the company to sign off on any written statements he made that could be deemed material. He has since mocked the regulator on Twitter.
The SEC is unlikely to challenge Mr. Musk over his bitcoin tweets, said John Coffee Jr., a Columbia University law professor who specializes in securities law, especially after a federal judge rebuked the commission when it sought to hold the CEO in contempt in 2019. Tesla didn’t respond to a request for comment about whether Mr. Musk had sought approval for his bitcoin commentary.
Mr. Musk’s online remarks can move markets. After touting online shopping site Etsy Inc. in January, the stock rose more than 8% on the open. Shares in CD Projekt SA, the maker of the troubled Cyberpunk 2077 game, rose more than 15% after Mr. Musk praised the game. Both stocks retreated later. Last year, Mr. Musk tweeted that he thought Tesla’s share price was too high. The market agreed, and the stock fell before recovering.
An affinity for bitcoin seems a natural fit for Mr. Musk, who has bristled at government constraints. Last year he battled local authorities in California that ordered his lone U.S. car plant closed as part of broader measures to curb the pandemic. Mr. Musk reopened the facility after several weeks, daring authorities to arrest him. They didn’t.
Part of bitcoin’s appeal for some holders is that it isn’t circulated or controlled by a government or nation. Unlike opening up a bank account to store dollars, euros or yen, starting a bitcoin account doesn’t require providing identifying information. Bitcoin is effectively anonymous, and law enforcement can’t freeze a bitcoin account as they could a bank account.
Payments company Square Inc., which shares bitcoin advocate Jack Dorsey as its CEO with Twitter Inc., acquired about $50 million worth for its corporate treasury in October. Massachusetts Mutual Life Insurance Co. acquired $100 million worth in December to hold in its general investment account.
Companies might have grown more optimistic about bitcoin after the March 2020 selloff, when it recovered faster than the broader stock market, said Joel Kruger, a currency strategist at LMAX Group.
The added wrinkle with Tesla is the plan to accept bitcoin from customers. Few companies now accept bitcoin directly as payment; Overstock.com Inc. is among the few that do. Some large companies experimented with bitcoin payments in 2014 and 2015, like Dell Technologies Inc. and Expedia Group Inc., but most later dropped it for lack of use.
While Tesla’s move would be high profile, a more substantial development is expected later this year, when PayPal Holdings Inc. plans to allow its customers to use their bitcoin holdings for payments.
Mr. Musk’s ties to the financial-services industry date to the 1990s, when he invested most of the $22 million he earned from the sale of an internet business into a new startup, X.com, that became PayPal. EBay Inc. bought PayPal for $1.4 billion in 2002.
As the largest shareholder, a 31-year-old Mr. Musk collected more than $100 million. He used the money to start Tesla and Space Exploration Technologies Corp., the rocket company he also runs, as well as solar-cell company SolarCity, now part of Tesla.
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
