- Tesla said earlier this week it will start accepting bitcoin as a form of payment for its products.
- The move comes after Tesla added $1.5 billion of bitcoin to its balance sheet in January.
- Detailed below are two key reasons why buying a Tesla with bitcoin is a bad idea.
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The move came two months after Tesla purchased $1.5 billion of bitcoin, as CEO Elon Musk continues to lend his support to the cryptocurrency. Musk said that any bitcoin received by the company as a form of payment won’t be converted into fiat currency, signaling that Musk is bullish on the long-term potential of the cryptocurrency.
But Tesla’s decision to accept bitcoin as a form of payment for its vehicles could be a bad deal for consumers that decide to follow through with the offer for two key reasons.
First, consumers that purchase a Tesla with bitcoin will face tax consequences, especially if they are sitting on large unrealized gains, as sending bitcoin is a taxable event akin to selling a stock.
Cathie Wood of Ark Invest suggests bitcoin investors that are sitting on large unrealized gains not sell or transact in the cryptocurrency until potential tax changes by the IRS are implemented. If the IRS were to reclassify bitcoin as a currency rather than property, the tax burden could be significantly less for investors.
Second, in the event that a consumer decides to return its Tesla bought with bitcoin, Tesla reserves the right to pay the consumer back in cash worth the original purchase price, not bitcoin, if the cryptocurrency has jumped in value since the original transaction.
Alternatively, Tesla reserves the right to pay the consumer back in the original amount of bitcoin paid if the cryptocurrency has fallen in value since the original transaction. On top of that, if a consumer overpays in bitcoin, Tesla reserves the right to not return the over payment to the consumer.
The reasoning behind Tesla’s decision is due to the high volatility of bitcoin, which has seen single day price movements of more than 10% in both directions. On Thursday, bitcoin fell as much as 7%, pushing it near the key $50,000 level.