Image by Gerd Altmann from Pixabay

Elon Musk on collision course with EU as Tesla chief’s Bitcoin splurge sparks concern

ELON MUSK might have set himself on a collision course with the EU – as after his Bitcoin investment, the European Central Bank (ECB) issued a stark warning about the cryptocurrency.

Bitcoin hit record highs earlier this month after Elon Musk’s car company Tesla said it had bought about $1.5billion (£1.1bn) of the cryptocurrency. Bitcoin rose above $48,000 (£34,820) before falling back slightly. Some investors took Tesla’s move as a signal that Bitcoin would become a mainstream financial asset.

According to Daniel Ives, analyst at Wedbush Securities, Tesla has made roughly $1billion (£723million) in paper profits from its investment.

Mr Ives estimated in a note published on Saturday: “The company is on a trajectory to make more from its Bitcoin investments than profits from selling its EV (electric vehicle) cars in all of 2020.”

Mr Musk’s endorsement of the digital currency, which he has in the past described as “simply a less dumb form of liquidity than cash”, might set him on a collision course against the European Union, though.

As Bitcoin’s price surged to a new historical high, the European Central Bank’s President Christine Lagarde launched a stark warning against the cryptocurrency earlier this month.

Image by Gerd Altmann from Pixabay
Image by Gerd Altmann from Pixabay

She said: “It [Bitcoin] is not a currency. Cryptocurrencies are not money.

The ECB President then underlined the lack of guarantees of real stability, as in the case of the euro or the dollar.

Explaining the risks consumers are exposed to, Ms Lagarde continued: “It is imperative that, if an activity is carried out by a private actor, this activity, if it is similar to money, is subject to exactly the same rules, exactly the same rations, exactly the same control mechanisms.

“So even if they are not money, but are ‘similar’ to them, the rules for cryptocurrencies and fiat currencies must be the same.”

In a recent report, the head of Oxford-based think-tank Euro Intelligence Wolfgang Munchau criticised Ms Lagarde, arguing her comment “goes to the heart of the misunderstanding of the economics and central bank professions about the nature of Bitcoin”.

He wrote: “It will not be up to them to decide whether or not it is money.

“That question will be settled by those who use it.

“Fiat money is a social contract that exists because people trust it.

“The betting on Bitcoin, including Elon Musk’s €1.5billion (£1.1bn) investment, constitute a bet that this might not always be so.”

Mr Munchau noted the world may only be a couple of policy mistakes away from an environment in which the use of digital money, Bitcoin and others, could become more widespread.

He explained: “Bitcoin is not only a bet against inflation like gold or silver. It is a bet against a system in which money is used as a policy tool. It is no surprise that the launch of Bitcoin, in 2009, coincided with the advent of quantitative easing.

“The widespread misunderstanding of policy makers is that the intention of Bitcoin was never to create a rival to the euro or the dollar but to create a device that protects from economists and central bankers or governments that want to track electronic payments.

“The group of techies who started the project with an article in 2009 saw Bitcoin as a device to protect individuals from state control of all kinds – by creating a stateless currency that could be used in transactions and a store of value.

Read more: Express