Tesla’s sharp turn on Bitcoin
Elon Musk has been a big cryptocurrency booster of late, even directing Tesla to buy $1.5 billion in Bitcoin for its corporate treasury earlier this year. Yesterday, he abruptly reversed course, tweeting that Tesla would stop accepting Bitcoin as payment for cars, citing environmental reasons. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” he said.
Bitcoin’s price promptly plunged by more than 10 percent. Tesla said it would begin accepting the cryptocurrency a few months ago, when it also revealed a billion-dollar Bitcoin buy, pushing the price up by more than 10 percent. Bitcoin seems remarkably sensitive to the billionaire’s tweets, and “if one person can dramatically alter spending power, the ‘stable store of value’ criteria of a currency is not met,” Paul Donovan of UBS wrote in a note to clients today.
Mining Bitcoin is energy-intensive, and the more it is worth, the more power it takes a network of computers to create the tokens, by design. Bitcoin’s climate problem is hardly a secret. So what gives?
Why now? Tesla only started accepting Bitcoin for car purchases in the U.S. in March. Just over two weeks ago, Zach Kirkhorn, Tesla’s C.F.O., told investors that “it is our intent to hold what we have long term and continue to accumulate Bitcoin from transactions from our customers as they purchase vehicles.” He described the rationale for buying and accepting Bitcoin as, simply, “Elon and I were looking for a place to store cash that wasn’t being immediately used, trying to get some level of return.”
What changed about Tesla’s understanding of energy issues? An entry-level Tesla is worth about 1 Bitcoin, so the company’s $1.5 billion Bitcoin purchase in February far surpasses the amount of crypto it would collect from car sales for a very long time. That raises questions about the vetting and approval process for that investment, which may worry E.S.G. investors, who otherwise look favorably at an electric vehicle company. Did Musk not know about Bitcoin’s environmental impact until now? Who advised him on it? Did climate factor into the board’s approval process?
How does Musk justify the environmental impact of his other companies? SpaceX’s rockets are massive carbon emitters. The Boring Company, his tunnel drilling endeavor, has also faced criticism about its environmental impact.
Did Tesla or Musk sell Bitcoin before the announcement? Musk’s statement said that “Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy.” We’ll see whether it made any recent trades when it reports second-quarter results in July. Given the impact Musk’s tweet had on Bitcoin’s price, any action just before or after will be scrutinized.
Did regulation play a role in the reversal? The return policy for cars bought with Bitcoin worked in Tesla’s favor, stipulating that buyers get back Bitcoin if it’s worth less than the equivalent dollar value at purchase but get back dollars if Bitcoin is worth more. That raises many issues, including accounting risks and worries about warranties and other consumer protection laws.
Musk can be an unreliable narrator. On Tuesday, he asked his followers on Twitter if Tesla should accept Dogecoin, the jokey cryptocurrency. (Most said yes.) On Sunday, he announced that SpaceX had taken Dogecoin as payment for shuttling a satellite to the moon. And as host of “Saturday Night Live,” he said that cryptocurrency was both “the future of currency” and “a hustle.”
In other crypto news, Vitalik Buterin, the creator of Ethereum, donated $1.5 billion in cryptocurrency to several charities yesterday, including around $1 billion in so-called meme coins to a Covid relief fund in India.
HERE’S WHAT’S HAPPENING
The Colonial Pipeline resumes operations. The pipeline, which supplies the East Coast with nearly half its transportation fuel, took the first step in restarting after a ransomware attack as panicked consumers rushed to buy gasoline. Normal conditions won’t return for several days.
The C.D.C. approves the Pfizer-BioNTech vaccine for 12- to 15-year-olds. The move is meant to accelerate school reopenings. Meanwhile, Ohio is creating a lottery with $1 million prizes to encourage residents to get vaccinated, and seven New York Yankees — all fully vaccinated — have been quarantined after testing positive.
Opposition to pandemic unemployment benefits grows. At least 11 Republican-led states plan to end the $300 weekly checks as early as June, amid debate over whether they are contributing to labor shortages. Senator Joe Manchin, Democrat of West Virginia, said he won’t vote to extend them when their authorization expires in September.
Bill Ackman bets big on Domino’s Pizza. The billionaire hedge fund investor said he had amassed a 6 percent stake in the chain, praising its performance during the pandemic and its delivery capabilities. He also hinted that his $5 billion SPAC was working on a complex deal for a well-known company.
Coinbase faces its first test as a publicly traded company. The cryptocurrency exchange will report its first earnings since going public after markets close today. Analysts expect a strong set of numbers, though they’re closely watching for the impact of increased competition.
Markets fear inflation
U.S. stock futures and global indexes are down this morning, following yesterday’s market drop — the third in a row — after consumer price data stoked fears of rising inflation that would test the Fed’s commitment to keeping interest rates low. All that also has the Biden administration increasingly concerned about the fate of its ambitious (and expensive) economic proposals.
The S&P 500 dropped 2 percent, its worst day since February, while the tech-heavy Nasdaq fell 2.7 percent. (The flagship fund of Ark Invest, which bet heavily on high-growth tech darlings, has fallen to a six-month low.) The yield on the 10-year Treasury note jumped to around 1.7 percent, from 1.5 percent a week ago.
A top Fed official suggested the central bank won’t act yet. “This is just one data point,” said Richard Clarida, the central bank’s Trump-appointed vice chair, though he conceded that yesterday’s numbers were a “surprise.” Clarida cited last week’s disappointing job gains data as a reason for the Fed to stay its course on interest rates. But some economists remain skeptical: “There is a lot of concern that the Fed is behind the curve on this,” Alan Detmeister of UBS told The Times.
The White House is privately anxious about its expansive economic policies, The Washington Post reports. Officials from the National Economic Council and the Treasury Department met over the weekend to discuss strategy. And an effort yesterday to woo Republican support for President Biden’s $2.3 trillion infrastructure proposal appeared to gain no converts.
Publicly, administration officials said they were committed to their agenda: “If anything, what we’re seeing are the positive impacts of the rescue plan as they work their way through the recovery,” the economic adviser Jared Bernstein said.
“Those who are least engaged are very comfortable working from home.”
— Sandeep Mathrani, WeWork’s C.E.O., at a Wall Street Journal event. “People are happier when they come to work,” the chief of the office rental company added.
Sewing up the carried interest loophole
Yesterday, Democratic senators introduced the Carried Interest Fairness Act, proposing to end a tax break that benefits real estate, private equity and venture capital investors above all. Senator Joe Manchin of West Virginia, the centrist Democrat who doesn’t always toe the party line, is among those proposing to shut the long-debated, little-understood loophole, which is one sign that it may become law after previous false starts.
Investment managers often pay less tax on earnings than other workers. Money from investment returns (or “carry”) is taxed at the capital gain rate, about 20 percent. Regular income is taxed at more than double this rate, when state and local levies are taken into account. Proponents of the practice, who hold a lot of political sway via their connections and donations, say that the funds merely represent a return on investment, not income.
Closing the gap would raise $15 billion over 10 years, according to the Joint Committee on Taxation. “For far too long, hedge fund managers working on Wall Street have not paid their fair share,” Manchin said in a statement.
Donald Trump campaigned on a promise to end the break, but the tax law that emerged from Congress did not address it. The loophole’s persistence surprised even Larry Kudlow, the conservative economist who crafted Trump’s tax plan. “I don’t know how that thing survived,” he said at the time. “I’m sure the lobbying was intense.”
President Biden has also promised a fix. He called on Congress to eliminate the loophole, saying it would be “an important structural change that is necessary to ensure” fairness. The Democrats have narrow majorities in both chambers, but the loophole has proved hard to close.
THE SPEED READ
The electric scooter company Bird plans to go public by merging with a SPAC at a valuation of around $2.3 billion. (Axios)
Shares in Hertz soared after the rental-car company backed a $6 billion takeover bid that includes a rare payout to shareholders of a bankrupt company. (CNBC)
The activist hedge fund ValueAct has taken a 4 percent stake in the owner of 7-Eleven and suggested it favors breaking up the convenience store operator. (Reuters)
Politics and policy
Behind the infighting on how to manage trillion-dollar federal stimulus programs: “It is just staggering how little oversight there is.” (NYT)
The U.S. ran a nearly $2 trillion budget gap in the first seven months of its fiscal year, a record. (WSJ)
David Cameron, the former British prime minister, will testify today about his multimillion-pound work advising the now-failed lender Greensill Capital. (WSJ)
Amazon won an appeal over a $300 million tax bill from the E.U., as American tech giants turn to courts to battle tighter regulation. (NYT)
Facebook’s digital currency project abandoned its application for a Swiss payments license and will focus on operating in the U.S. (CNBC)
An Airbnb pricing algorithm led to wider racial pricing disparities, including for Black hosts, a new study found. (FT)
Best of the rest
JPMorgan Chase and Wells Fargo are among the banks that plan to issue credit cards to people with no credit scores, using deposit account data instead. (WSJ)
Ellen DeGeneres is ending her talk show after two decades, following a ratings slide and accusations of a hostile work environment. (NYT)
How N.B.A. stars turned Top Shot Moments into some of the most popular NFTs around. (NYT)
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