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Tesla made more money on bitcoin in one month than in 12 years selling cars.

That’s just one of the statements going around on social media right now.

Tesla made over $1 billion on its bitcoin holdings in a month.

That’s the other one.

In fact, these statements are true. But they’re also false.

So, how can something be true and false at the same time?

Is Tesla and bitcoin some kind of mixed up Schrödinger’s EV company? Or is it just a case of not understanding and being able to separate fact from hype?

Let me explain…

Schrödinger’s Elon

Schrödinger’s cat is a theoretical paradox. The crude explanation is there’s a cat in a special box with radioactive material and a vial of poisonous gas. If the material decays, the acid would be released, exposing the cat and it would die.

But there’s no way to know if the material has decayed, triggering the events to release the gas, killing the cat. Hence, until the box is actually opened, the cat is both alive and dead.

It’s a paradox of superposition, a quantum theory. It’s also a thought experiment considering if the actual observation of something can influence its outcome.

Of course, no cats were actually killed in this experiment. I feel a little sorry for cats. They always seem to be ones that get the rough end of the stick.

You don’t hear about Schrödinger’s dog. You never hear about a space being so small that you “couldn’t swing a dog in here.”

Anyway, I digress.

Schrödinger’s cat (or dog or whatever animal you want in the box) does help to explain quantum theory. And that something can exist at the same time in multiple states.

That’s relevant because when you look at something like Tesla’s bitcoin holdings, you also need to look at it with a different perspective. You need to apply somewhat of a thought experiment to it.

You actually need to apply the same kind of “multiple state” thinking when you’re looking at the entire ecosystem of cryptocurrencies, including bitcoin.

You see, those statements I opened with are true.

Tesla has “made $1 billion” on its bitcoin holdings. The company purchased $1.5 billion of BTC in January after updating its investment policy.

These results came out on 27 January, and it’s unlikely Tesla changed its policy on 1 January and completed the buying over that weekend. During that period BTC ranged from just under $30,000 to just over $40,000.

If we take an average at about $35,000, then Tesla likely holds around 42,857 BTC.

At the time of writing this, bitcoin was $55,500 and Tesla’s BTC holdings worth an assumed $2.378 billion. So not quite $1 billion, but a couple days earlier, it was.

However, Tesla hasn’t “made” anything. For all we know it still holds its BTC. Therefore the “gains” it’s made are theoretical. They are paper gains.

This isn’t the paradox though.

The real though experiment is this…

Priced in what now?

Consider this, Tesla hasn’t made $1 billion from its BTC. Instead, consider it has lost $1 billion in the value of the US dollar.

Interesting change in perspective that.

What if for every dollar bitcoin rises in price, you think about it differently? Perhaps you should think about it as the US dollar declines in value against bitcoin, not bitcoin increasing in price.

That’s superposition in the crypto economy.

It’s because we all think in terms of fiat money first, other assets second.

My view is that’s the wrong way to think about what’s happening in crypto. That’s the wrong way to think about bitcoin and other crypto as a wealth-creation asset.

In a world without crypto, the only way to gauge the decreasing value of money is inflation figures. Price of things goes up, that’s inflation. Thanks to asset price inflation, everyone feels like they’re getting richer.

Most of the time, that’s not actually the case.

For example, your property might have grown in value. But what are you going to do? Sell it and then buy an equivalent property for the same inflated price?

The fallacy of selling and downsizing is something that most people are realistically never going to do. Asset price inflation moves everything higher in value… but it’s really to hide the reality that the value of the dollar, or pound, is decreasing.

One pound today will not have the same purchasing power in a year’s time. In ten years’ time, it’ll be even worse.

What bitcoin is doing is highlighting how bad that fiat money devaluation really is.

There’s an argument that bitcoin is actually the soundest money we’ve ever seen.

Now if the central bankers say that fiat money is stable and sound, yet we’re seeing unconscionable central bank monetary system intervention, how sound can it really be?

But perhaps gold is the only true, sound money? Perhaps, but it does not fit or function easily in a highly connected, technology focused and instantaneous world.

I believe that bitcoin isn’t necessarily going up in price. Instead, I believe it’s actually just showing how poor the fiat money system really is.

Not only is it highlighting the ineffectiveness of fiat money but it’s also providing a long-term alternative. An alternative that perhaps really is the soundest money in history. An alternative that is worth having a stake in to protect yourself from the ever decreasing value your fiat money holds.

That was the intention of Tesla. Not to make huge gains from bitcoin. Its intention was to protect the value of their wealth. Bitcoin is wealth preservation to them, and maybe that’s how you should be thinking about it too.


Sam Volkering
Editor, Exponential Investor