Tesla’s U-turn: A Meaningful Shift to the Stablecoin Market

Suddenly, Tesla pestered an already nervous crypto market. Regardless of the stunt, it happens to enlighten the start of the Stablecoin.

The relationship between the crypto market and the public narrative is tight. As Elon Musk says that bitcoin (BTC) is harmful to the environment, other investors might be wiggled by public scrutiny and decide to sell. Somehow, we lost our grip and playfully consisting the expectation of what others think. Yet, we lose the sail and forget the fundamentals.

Instead of adhering to a PR stunt, we may discern that Tesla would accept BTC as payment. While at the same time, they also announced a $1.5 billion investment in the asset. But, if bitcoin is a reserve asset, a hedge against fiat debasement: why would users want to use it as a payment token?

A turn for none

People still insist that bitcoin is futile as a payment token due to its high fees and slow confirmation duration. However, it turns out that bitcoin as a payment system is better than today’s existing system.

In the case of Tesla’s target audience, bitcoin somehow is the least payment option. Some would preferably choose bank transfers or platinum credit cards. And Tesla’s signaling bitcoin as a proper payment method and a reserve asset.

But why would they let this intellectual disconnect happened? While the number of Tesla customers excited about paying with bitcoin was always going to be small to nonexistent?

Yes, once again, another performed PR stunt. Removing the option for the nonexistent customer is arguably a ham-fisted trait. The economic impact of neglecting something hardly anyone would want anyway is negligible, both for Tesla and for the demand for bitcoin.

With the sudden swerve over the rapidly increasing use of fossil fuel for Bitcoin mining via Twitter, why are they just finding that now? Why is supposedly contaminating BTC acceptable for the balance sheet but not as a possible (but unlikely) convenience for users?

Tesla aims to accelerate the world transition to sustainable energy. At least, that what they said, according to the headline on their website. This week, Tesla entered the S&P 500 ESG Index (up 9.8% year to date at the time of writing, slightly ahead of the S&P 500), which selects stocks based on environmental, social, and corporate governance scores relative to others in the same industry group. And earlier this week, with uncanny timing, Reuters reported that Tesla was seeking entry into the multibillion-dollar U.S. renewable fuel credit market.

It projected the heavy investment of Tesla in sustainable energy and passionately invested in bitcoin. Profoundly, it’s picturing the U-turn is more attached to the policy more than the price. This simultaneous convo along this term is highly flooding the idea about Tesla-branded “green” bitcoin mining.

Here is the outcome: the more bitcoin mining gets discussed at a policy level, the more acceptable it becomes as an industrial activity.

On the front door of the Stablecoin

Tether (USDT) is one of the largest Stablecoin by far. We have known that Tether depicted with a cloud of suspicion. And its tokens are not fully backed by dollar reserves — and now, we found it was true.

The recent settlement with the New York Attorney General office arranged that Tether would publish quarterly breakdowns of its reserves. It happened this week in the form of pie charts below:

source: Coin Metrics

Almost half of all reserves (65% of the 75% cash & cash equivalents) held in commercial paper, which is not always liquid, nor does it reliably retain its value. Even though market participants got nervous, Tether keeps its continued growth, liquidity, and pervasiveness amidst uncertainty. Including, it cemented the significant role of Tether as a higher exceptional supply than other cryptocurrencies.

Formerly Facebook-linked Libra, Diem is partnering with Silvergate Bank to launch a U.S. dollar-pegged Stablecoin. Even it’s still a far ocean of the original ambition, which aimed to put the convenience of blockchain-based electronic money in the wallets of all Facebook users, it’s still a significant gesture. That is the first time we have a U.S. bank launching a Stablecoin.

Tether will likely continue to dominate the Stablecoin market for some time, despite weakening confidence in its backing (which was never very strong anyway). However, the numbers are also aiming to shift. In fact, in 2020–2021, so far, supply growth and market capitalization in the other top four Stablecoins has outpaced the market leader.


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