ACCT 520: CASE 2: Impact of BITCOIN on the Management Options:Bitcoin bubble bursts overnight, dragging down stocks

ISSUE I: After stunning run-up over the past year, cryptocurrencies are tanking.

Recently, a broad selloff of prominent cryptocurrencies has vaporized billions of dollars in value. Bitcoin, the largest cryptocurrency affected, is off more than 18 percent in the last 24 hours. Currently, it’s worth just over half what it was in mid-April. Over the past week, more than $600 billion has been wiped out of a wide range of more than 7,000 cryptocurrencies, including bitcoin, ether, and meme coins like dogecoin, according to CoinGecko.

The causes for the selloff are myriad. The first shot across the bow came last week when Tesla CEO Elon Musk declared that his company would no longer be accepting bitcoin for car purchases. The change happened less than two months after he said that Tesla would accept bitcoin, and the about-face came as Musk said he is concerned about the environmental damages being wrought by the energy-intensive cryptocurrency.

The next jolt to crypto markets came this past Sunday when Musk suggested that Tesla either had sold or would be selling its bitcoin holdings, which amounted to $1.5 billion when they were disclosed back in early February. Musk’s market-moving tweetLinks to an external site. was a cryptic “Indeed” posted in reply to @CryptoWhale, who had said, “Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings.” That single word sent bitcoin tumbling. On Monday, Musk clarifiedLinks to an external site. that “Tesla has not sold any Bitcoin.” After that, the cryptocurrency regained some of its value.

The rally was short-lived, though. China issued a warning that financial institutions in the country shouldn’t process or participate in crypto-transactions or offer related services. “Prices of cryptocurrency have skyrocketed and plummeted recently, and speculative trading has bounced back. This seriously harms the safety of people’s property and disturbs normal economic and financial orders,” the regulators said in a statement.

China has tried to tamp down speculation on cryptocurrencies before. In 2017, the country shutteredLinks to an external site. local cryptocurrency exchanges, and in 2019, the Chinese central bank said it would ban domestic and foreign exchanges and websites with initial coin offeringsLinks to an external site.. At the time, some 90 percent of all transactions occurred in China. Earlier this year, the regional government in China’s Inner Mongolia province announced a ban on cryptocurrency mining by the end of April. Before the ban, 8 percent of all bitcoin mining was estimated to occur in the province, which has cheap power due to massive amounts of coal production.

Despite China’s frosty stance toward bitcoin, around three-quarters of all mining occurs in China. The coin’s massive electricity use—estimated to be about as much as the entire country of Egypt—is not helping China meet its goals for reducing greenhouse gases. A recent study said that without intervention, bitcoin mining in the country would contributeLinks to an external site. 130.5 million tonnes of carbon dioxide at its expected peak in 2024.

Cryptocurrencies have come under increasing scrutiny by regulators and law enforcement in the US, too. In the wake of the Colonial Pipeline malware attack, news leakedLinks to an external site. that crypto-exchange Binance was under investigation by the Department of Justice, the Internal Revenue Service, and the Commodity Futures Trading Commission.

The crypto bubble began inflating in early 2020 and took off late last year as the market for derivatives took hold and institutional investors began to devise bitcoin strategies. Large firms like Fidelity Investments began offering custodial services to select clients. At the peak, around $2.5 trillionLinks to an external site. were invested in cryptocurrencies of various flavors, with a significant portion in bitcoin.

Today’s bitcoin plunge is spreading to equities markets as well. Major bitcoin holders, including Tesla, are down in early trading.

ISSUE II: It’s not just Tesla that takes bitcoin — these shops will take your payment in crypto too

Bitcoin can be for purchases at some of the world’s biggest retailers, including Apple, Amazon and Expedia

Bitcoin has had a meteoric year as institutional investors, investment banks and fund managers, such as Tesla, Square and JPMorgan, continue to back the cryptocurrency by including the asset and related companies in their portfolios.

The digital coin’s price has almost doubled so far in 2021, rising to $56,914 as of 11am GMT on 12 March.

But bitcoin isn’t just a store of value — it can also be used in some places as a form of payment, with select vendors already jumping on the wagon.

As the vaccine rollout around the world triggers reopening of economies, US luxury hotel chain Kessler also said this week its Kessler Collection group of hotels would accept cryptocurrency as a form of payment.

The group is making the move in partnership with BitPay, the world’s largest provider of Bitcoin and cryptocurrency payment services.

Here are some of the top places where you can pay for goods and services with bitcoin, if you’ve been nurturing a little cryptocurrency nest egg.

CARS

Heralded as one of the first major corporate entities to put its full weight behind bitcoin, Tesla invested $1.5bn in the cryptocurrency in February as part of its portfolio. Alongside that move, the electric carmaker also said it will soon accept bitcoinLinks to an external site. as a form of payment for its products.

The payment method will be “subject to applicable laws and initially on a limited basis”, but it means that soon you could buy a Tesla Model 3, which starts at $35,000, for 0.615 BTC.

SOFTWARE

Microsoft, one of the world’s largest software companies accepts payments in bitcoin to top up its user accounts.

Bitcoin can be redeemed as credit on a Microsoft account, which can then be used for a variety of its services, such as Xbox Live, Microsoft 365, OneDrive or Skype.

Others, such as Namecheap and Gandi, allow you to purchase web domain names using cryptocurrencies.

GAMING

Amazon’s live-streaming platform Twitch, known as a hub for live-streamed events and gameplay, accepts bitcoin and select other coins as payment.

The cryptocurrencies can be used to pay for subscriptions to different streamers, tip streamers with the platform’s in-game currency known as Bits, or gift subscriptions to other users.

TRAVEL

A number of places now accept bitcoin and other cryptocurrencies as a means of payment for travel, flight and vacation packages.

Flight Centre uses Bitpay to accept bitcoin for transactions, as does airBaltic and private jet and yachting companies such as PrivateFly, JetFinder and The Yacht Break.

Expedia, the online travel agency, also accepts bitcoin as a means of payment via a partnership with Coinbase.

The Kessler Collection of hotels now accepts payments, making history as the first US luxury hotel group to do so. Its hotels will send customers invoices over email, and allow guests to pay via BitPay from their crypto wallets.

SHOPPING

Lush, one of the UK and US’ most recognisable beauty retailers, accepts cryptocurrencies as a form of payment on its website. So too does major marketplace payments network Shopify, meaning that any merchant operating via a Shopify store can accept bitcoin.

Japanese e-commerce giant Rakuten launched support for payment via bitcoin and other cryptocurrencies at merchants throughout Japan earlier this month, which has 95 million registered users.

City haunt and Scottish restaurant Boisdale reportedly accepts bitcoin as a way of paying for dinner, while Brewdog’s Canary Wharf bar accepts bitcoin and bitcoin cash as payment. The brewery startup also accepted bitcoin as payment for shares in the company in its Equity for Punks programme in 2018.

HOW TO GET THE MOST BANG FOR YOUR CRYPTO BUCK?

One of the biggest ways to shop online using cryptocurrencies is via gift cards, purchased with crypto through Bitpay and other crypto payment networks. Users can exchange cryptocurrencies for up to £1,000 at some retailers, including Apple, Amazon, Google Play, Uber and Spotify.

Many restaurants and coffee chains across the UK also accept bitcoin as a way of buying a gift card, including Wagamama, Pizza Express, Caffe Nero and Brasserie Blanc. Fast food restaurants are also a popular choice, including Domino’s Pizza and Pizza Hut, and takeaway platforms Uber Eats, Deliveroo and Just Eat.

Tesco, Sainsbury’s, Marks & Spencer, John Lewis, Asda and Argos are all major UK retailers that accept gift cards via Bitpay.

ISSUE III: Tesla Backtracked on Accepting Bitcoin….BUT WHY????

• Tesla Links to an external site.has bought and sold a lot of the cryptocurrency bitcoin, and was also taking it in payment for EVs but suddenly stopped earlier this month.
• CEO Elon Musk’s cited reason was that mining bitcoin is too hard on the environment; he said Tesla would not accept it for EV purchases until the production of the coin becomes more environmentally friendly.
• Musk claimed he wouldn’t be selling off the company’s own bitcoin, and it’s likely at least some form of cryptocurrency will be accepted again to buy a Tesla eventually. Meanwhile, there are dealerships around the country that are accepting bitcoin now for other brands.

Like most activity in the modern stock market, Elon Musk’s sudden reversal to stop accepting bitcoin as payment for Tesla has little basis in reality—except for speculators in cryptocurrencies and Tesla stock.

It was a short-term bet that paid off handsomely for Tesla: buy $1.5 billion worth of bitcoin at the close of 2020 when it sold for under $20,000; sell off 10 percent of it during the first quarter of 2021 as bitcoin neared $50,000; reap a $101 million profitLinks to an external site.. That profit accounted for almost a quarter of Tesla’s $438 million net income that quarter. At the end of March, either before or after the sale, Tesla began accepting bitcoinLinks to an external site. on its website for crypto customers who could fire off a digital deposit or an entire car’s worth of coin. Then, on May 12, Tesla yanked it.

“Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk said that day in a formalized statement on TwitterLinks to an external site.. “Tesla will not be selling any bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy.”

Bitcoin’s price, which had crested to nearly $60,000 in the days before Musk’s tweet, was already dropping heavily all day before it sank below $48,000 in the hours that followed. Thousands of people and bot accounts replied to Musk, as they usually do, but this time offering lesser-known cryptocurrencies hoping that a tweet from Musk—an endorsement, by any measure—would send their bank accounts soaring.

“Working with Doge devs to improve system transaction efficiency. Potentially promising,” Musk tweeted the next day. That was days after he was on Saturday Night Live on May 8 and said, “Yeah, it’s a hustle” when asked about dogecoinLinks to an external site., the joke that turned into serious cryptocurrency after Musk popularized it with tweets in April. As expected, his comments on the TV show sent dogecoin on a downward slope—more than 35 percent, according to CoindeskLinks to an external site.. Lo and behold, after Musk’s tweet on May 13, it’s going back upLinks to an external site.. Tesla’s stock also dipped sharply to below $600—one of the lowest dips of this year—and already in after-hours trading this weekend, it’s trending upward.

Tesla’s experiment with bitcoin didn’t help customers, who were warnedLinks to an external site. they could overpay for their cars if the currency’s exchange rate changed and that Tesla couldn’t pay them back if it did, that hackers could steal currency, that bitcoins could be “lost or destroyed,” and that if they entered the wrong wallet code, the bitcoin might go anywhere other than Tesla. Not problems that ever happen to people using real currency.

Although you won’t be able to buy a Tesla (for now) using bitcoin, there are dealers around the country that have already started to accept the cryptocurrency. Two examples, located by ReutersLinks to an external site. and CNBC, are the Houston luxury-car dealership Post OakLinks to an external site.—which displays a shiny bitcoin on its homepage—and the Alabama and Georgia Kia dealer Carriage Auto GroupLinks to an external site.. Post Oak’s owner told CNBCLinks to an external site. earlier this year that the dealership has already sold 17 cars using bitcoin. Carriage will take it only if buyers can pay the entire cost of the vehicle purchase with the currency.

So as long as you realize it’s still an unregulated, complexLinks to an external site. marketplace, and arguably still a bit shady, it’s still possible to purchase a vehicle in some places using bitcoin. As for Tesla, it’s to be expected that cryptocurrency will become a medium of exchange there again sooner or later.

REQUIRED:

Prepare a 6 – 8 page case analysis of the world of BITCOIN…Analyze the interesting…yet confusing world of CYRPTO-CURRENCY….Discuss whether you and your team. believe it should be used as a payment option…furthermore discuss the impact notable industry leaders like Elon. Musk has had on the acceptability of the currency…and the interesting change of mind just recently announced…Will this end the popularity??

Introduction/Overview of Case

Research Conducted

Impact of the Issues on Managerial Decision-Making

Conclusions/Recommendations Reached

Further Research Needed

References/Resources