Thread by @smdiehl

Let's talk about Elon's "hustle" with Tesla's bitcoin holdings and why it's horrible for markets and the public at large. (1/) 🧵

Disclosure: It won't come as a shock to anyone I'm not a fan of Muskrat cult of personality that emerged around him. However a person is not reducible down to a single facet, we're all the sum of our good and bad choices.

While there is some good, let's talk about the bad. (2/)

The facts:

In January 2021, Tesla the company decided to use company funds to silently purchase bitcoin at $34,200 facilitated by the then private company Coinbase. The company spent $1.5bn to secretly purchase 48,000 coins. (3/)

The director of the company then made an increasingly bizarre set of announcements eluding to the asset the company had put on its balance sheet before finally disclosing their holdings on February 8. (4/)

The media coverage of this event sent the price upwards thus increasing the price of the company's assets up to a high of $44,100 per coin. (5/)
ft.com/content/5e83f1…

Elon kept doing his song and dance routine pushing his narrative about the this "investment of the future" through a set childish memes posted on his widely-followed Twitter account. (6/)
ft.com/content/d8e513…

It's unprovable, but probably indisputable, that this media circus drove many retail investors to dump their savings and stimulus checks into this asset class with an expectation of returns based on the perceived legitimacy brought by Tesla's holdings. (7/)

But while all this is all going on, Tesla is secretly unwinding their positions to convert their bitcoin back into dollars to take advantage of the inflated price to generate a outsized return. This is pure profit for Tesla. (8/)

"Tesla pulled a new lever to juice earnings in the quarter, generating $101 million in income from selling about 10% of its Bitcoin holdings." (9/)
bloomberg.com/news/articles/…

Yesterday Tesla walked back its position on bitcoin claiming environmental reasons. A claim no rational person can believe at face value.

The climate change impact of bitcoin is the most indisputable fact about the asset and has been widely known for years. (10/)

However what likely did happen is that many ESG investment funds focusing on environmental impact of their portfolios threatened to rebalance by divesting their holdings of Tesla stock. (11/)

If that did happen and the company's shares decreased by even a small percent, the company would proportionally lose access to its insanely discounted capital which it uses to fund its efforts and incentives its employees. (12/)

Tesla had a choice between traditional capital markets or bitcoin. And the bitcoin "market" has been horizontal for months and a hard correction is inevitable.

Tesla doesn't care about the climate, they just care about money, so they made the economically rational choice. (13/)

It's important to understand that the stock market capitalises expectations of future profits. It is literally a market where claims on expected future profits can be exchanged for capital.

Stories about tomorrow for cash today. (14/)

If this were any other regulated asset class but bitcoin, what the company did would be illegal. At face value it all looks blatantly like a market manipulation scheme all done in public view. (15/)

Many of us suspect this is exploiting the fact that with the new administration is still in transition phase from Trump to Biden staff, they wouldn't have the bandwidth to pursue this case. And that's probably correct. (16/)

What Tesla did all seems very shady, but it's hard to pin down where exactly it becomes wrong. Like all market crimes, they're victimless white collar crimes against some abstract notion of the public's legitimate expectations of the market. (17/)

And there is a sort of twisted economic logic to all of this, Elon can basically make "free" money without doing anything but tweeting. Except the definition of free means free only for Elon.

It begs the question, where is that money coming from? (18/)

If this is market manipulation, then it is an open direct wealth transfer from the open public to Elon. Its cents stolen out of ever dollar that retail investors think they hold in Robinhood or Coinbase in the form of price manipulation. (19/)

The public should be asking is how much stimulus money from the US Treasury was dumped into this market circus. Instead of it flowing back into the economy it appears taxpayer money is indirectly going to pad Tesla's earnings while Coinbase takes a slice. Quite a racket. (20/)

The only sane take that any politician had during the whole GME gamma squeeze fiasco was by Elizabeth Warren. An opinion I hold as well, that this all is not healthy for markets or consumers. (21/)

> We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules. To have a healthy stock market, you've got to have a cop on the beat. That should be the SEC, they need to step up and do their job.
(22/)

Even if you're the most hardline defender of free markets, having a single individual able to move asset classes (especially those that pretend to be a stable "store of value") can't be anything but a perversion of the market economy. (23/)

It concentrates too much market information in one place, an insider cartel, and doesn't allow asset price formation to happen organically.

We've seen this before in history and it never ends well. (24/)

Do we really want to live in a world in which every company is incentivized to do flash-in-the-pan pump and dump schemes on dog money to pad their earnings? I sure don't.

How much damage has to be done before we'll see sensible regulation? Where are regulators?

/fin